Honeywell International Inc. (HON) Earnings Call Transcript & Summary

Ladies and gentlemen, please welcome Sean Meakim, Vice President of Investor Relations.

Good morning, everyone. It's great to see you all here in person. We're very excited to have you here today at our new Charlotte headquarters, excited for all the new information we're going to provide for you today. Thanks for making the trip. Before we get started, everyone just take 2 seconds. Check your phone. Make sure it's on silent, please. For those of you listening on the webcast, you'll be able to follow along with the presentation materials as they are presented via Zoom. So first, just with the quick disclosures. I'd like to remind you that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change based on many factors, including changing economic and business conditions, and we ask that you interpret them in that light. We identify the principal risks and uncertainties that may affect our performance in our annual report on Form 10-K and other SEC filings. So with the formalities out of the way, let's get going with the agenda. We have a combination of presentations and thematic panel discussions lined up for you today. You'll notice that we have limited breaks, so just use your discretion. If you need to use the restroom, grab a drink, whatever it is, do that on your own time. We have -- I'll be the moderator for 4 of our panel sessions today with a wide range of leaders across our businesses, and we'll leave time for your questions at the end of each of those sessions. This afternoon, we'll go upstairs to the 23rd floor for some interactive technology demonstrations that showcase some of the key emerging technologies across our portfolio. The color on your badge that you received during registration will indicate which room you'll start in. We'll have folks directing you to make sure you end up in the right room. We'll be rotating, so there's chance to see all 3 presentations. We'll also leave time for your questions at the end of those sessions. At the end, we'll have a cocktail hour up on 23 with all of our Honeywell leadership as well as some great views of the city. So in terms of lineup, you'll have the chance to speak -- the chance to see all the key leaders across our business and learn about where we see the business heading from here. And then during the panels, you'll get incremental insights from many of our other business leaders as well as seeing and getting to experience the depth and breadth of our bench. So with that, let's get the day started. To kick things off, it's my pleasure to introduce Honeywell's Chairman and CEO, Darius Adamczyk.

Thank you, Sean. Well, good morning, everyone, and it's actually great to see many of you in person. It's been a long time. It's been since 2019 since we've actually had a chance to get together like this. And also, welcome to everybody joining through the webcast. So it's great to have you. Hopefully, you'll not only enjoy the day, but you'll also enjoy the building because this building actually contains all of our technologies, both from Doug Wrights' shop, as well as Que's shops. So hopefully, you'll get a chance to experience that as well. And as we get further on the day, as you go upstairs, you'll see that this headquarters fully uses all the things that we do. So let's get started. Over the course of the last several years, one of the things that we've proven, and we've proven it for more than a decade, is we've got a very consistent, dependable, reliable value-creation framework that's operated well for us for decades, and our say matches our do. And today is really an exciting day because today is really the culmination of a lot of the things that we've been working on in terms of the transformation initiatives in taking and enabling the next level of performance. So as we take a look at our end markets, as well as the innovation, the incremental breakthrough initiatives and all the things that we've been doing is going to be reflected in what we talk about today. And it's not just the financials. ESG is also something that we've done for a long time, way before everybody talked about it. It's something that's part of our DNA. It's been part of our DNA. We actually -- on the E front, particularly, it's something that we've done for 1.5 decades of greater than 90% greenhouse gas emissions. But we're also going to not just talk about the past in terms of ESG, but we're also going to talk about the future. So this is a little bit of making it easy for all of you in terms of some of the key takeaways from today. So some of these things I'll talk about and get into specifics. And others, some of my colleagues here will talk about a little bit later. But let's go through these. First of all, accelerating long-term financial algorithm. I know you want to see the specifics of that. I'll cover that a little bit later. I know no one is interested in that, but I'll bore you with it, anyway. The second thing is a hard commitment to capital deployment, and this is a hard commitment which is going to set a floor for capital deployment. I think you're going to find it interesting but also compelling versus what we've been deploying in the past. And it's a hard commitment over the next 3 years. Next, we feel great about our stock. We feel great about the future and what we're doing. And essentially, where the stock is, which is essentially free, we're going to be committing to $4 billion of buybacks this year because this is the kind of confidence we have in the stock. We initiated that already, but we've got a long way to go. And this is a firm commitment we're going to be making this year. Breakthrough graduations. It's always great to see some of our breakthroughs become business units. We've had 5 of those happen, and today is the graduation of another one, which is sustainability technology solutions. I've got a page on it later. But essentially, it's going to be our fastest-growing business unit within Honeywell. It's going to grow at a clip of 50% compound annual growth rate for the next 3 years, and you're going to see some specific commitments around the growth rate. And not only is it great financially, it's going to do even better things for the environment and our planet. Further commitments on emissions reductions. I'm going to talk to you a little bit about Scope 3 commitments that we're going to be making, which are going to be substantial, and we're going to be leading the industry. Next, we're going to talk to you a little bit about our ESG revenues, where already greater than 60% of our revenues is ESG oriented. We're going to be growing that in the future. And maybe last subject, which maybe we're not going to spend a ton of time on it, but we do want to -- because I think that there's some confusion on that, which is Quantinuum. I think because there's -- I get a lot of questions, "Why are you guys investing in Quantinuum? You guys could drop $0.15 to the bottom line if you do that." Let me provide a very simple framework. The way you should think about Quantinuum in a very simple form: It's additive cash that we're going to have to deploy back to our shareholders, and it's a meaningful amount of cash. So as you model this forward, that's the right way to think about it. So yes, we're making some investments today, but those investments are going to pay off, and incremental cash are going to be generated for you to deploy back into the business, whether it's through M&A, buybacks or dividends or whatever it may be. It's a very, very important takeaway that I hope all of you remember. Greg is going to take you through a few more details about that later. You've seen this chart before. I'm not going to spend a lot of time on it. This is our value-creation framework. But probably, I want to focus on 2 things. Number one is innovation. Innovation is who we are. It's -- we are an innovative company that's been doing this for decades, and we've doubled down on it. If you recall back, one of my core objectives when I became CEO was, number one, is enhance organic growth. And we've doubled down on innovation, not just innovation in our core, but also innovation through our breakthrough initiatives, 5 of which have now become full-fledged business units. And I've always said, not all the breakthroughs will work, but some will, and some have really flourished. And why is innovation so different for Honeywell versus some of the other companies out there? It's different because we have enormous install bases, and we co-innovate, we partner. And just to give you some specific numbers: 10 million buildings, 50,000 aircraft, 11,000 industrial facilities and over 15,000 warehouses. It enables us to partner with our customers to co-innovate and create the solutions that they need to make their businesses more efficient, more productive and generate more revenues and profitability for them. A little bit about our framework. I just want to take you through a little bit of what Honeywell was, what I committed to and what we're actually delivering. So if you take a look at Honeywell back in the '14 to '16 time frame, was very good at margin expansion, and it grew at about 1% organically per year, which was fine because it did a really nice job in margin expansion. What I committed to you as investors is 3% to 5% organic growth rate, 30 to 50 bps margin expansion, better cash conversion and more aggressive capital deployment. And we've delivered that. We actually exceeded that, particularly on margin expansion in the last few years. And we've grown at the top of the organic growth rate. Hopefully, you'll give me a break on 2020 because it's a little bit of a unique year. I think, hopefully, all of us can admit that. But if you look at any other year in that time frame, we've actually exceeded those commitments. And now talking a little bit more about our transformation. That transformation is taking place organically and inorganic. And just to kind of -- a little bit of a refresh around what is the transformation I'm talking about. Honeywell Digital, ISC transformation, Honeywell Connected Enterprise, breakthrough innovation, and then finally, ESG. All of these things we've been working on and deploying time, effort and money to transform the enterprise. And today, we're going to be proud and we're going to be talking to you a little bit what does that mean? What does it mean for our future commitments? And it's pretty exciting in terms of what it means. And then inorganically, we haven't been standing still. We've continued to transform our portfolio, added businesses, subtracted businesses. And you have our absolute commitment that we're going to continue to do that. Portfolio rotation, staying contemporary and aligning the businesses with future trends, the megatrends and what's relevant to customers is always going to be part of our playbook. I don't have any big portfolio announcements today for you, unfortunately. Some of you may be disappointed. But what I do have for you is a commitment that we're going to stay relevant. And we're not afraid to part with any business that's not aligned to our -- the megatrends and is not going to be viable long term. And then we're going to acquire businesses, but we're going to do it in a smart way, a way that we view your money as our money, and we want to deploy it the way you'd want to deploy it. A little bit about our performance and versus our peers. Everybody talks about top line growth rate, which is important. But margin improvement is just as important because value creation is a function of revenue, margin expansion as well as cash generation. And we've done a great job in all 3 of these elements. A matter of fact, if you look at those 2 elements combined, organic growth rate and margin expansion, we're ahead of all of our peers, at least many of the people that all of you compare us to. Why is that important because you could argue that's backwards looking. It may be backwards looking, but it's something that establishes credibility to what we're going to talk to you about in a minute in terms of what we believe in and what we're going to do in the future. And I think that you're going to find it pretty exciting. So operational excellence. I want to take a minute to explain what this is because for many years, you've heard about HOS, for the HOS Gold and now Accelerator. So what does all of this mean and what am I coming from? So Dave introduced HOS probably about a decade ago, and that was basically an operating system that focused that within the 4 walls and optimize their manufacturing operations. And by the way, it creates a lot of value. Then we moved down to HOS Gold, which had a set of tools which span beyond just integrated supply chain but also some of the other functions. But it wasn't well organized, and it wasn't structured. What we've launched now is Honeywell Accelerator, which has a set of tools, processes, templates and really how -- the operating system of how we run the business, which is focused at functions, as well as general management. And it underpins everything we do at Honeywell. And it's also a development tool because if you go into Honeywell Accelerator, and it isn't a physical thing, it actually is a virtual website, and you can learn 100-level, 200-, 300-level courses on all these different areas. And you have some of them outlined there, innovation, commercial excellence, finance, strategy, people development, all these things that you need either as a functional leader or as a general manager. This is what underpins how we operate Honeywell today. We've made a big investment, not just creating this learning tool, but also further developing and optimizing the content, and we're going to continue to optimize that content as we move forward. Rigorous operators. Hopefully, we don't have to prove this to you. Hopefully, you already believe it. But I do want to explain a little bit how we're evolving. So if you think about the supply chain transformation, initially, it was very much focused on network optimization and productivity. We're changing that. We're entering a whole different phase in terms of ISC transformation. Now we're focused on digitizing the supply chain. We're focused on automation, and it's the next phase of evolution. For Honeywell Digital, frankly, initially, we just had to clean up the mess. I mean, if you take a look at that, 148 ERP systems, 1,500 websites, 2,200 applications. I mean, that is a complete mess. You really can't, and it's very difficult to run a company with that kind of an IT mess. So that was sort of stage 1. We completed that a couple of years ago. Then went to Stage 2, which is, okay, now that we've kind of cleaned up the mess, now we're going to have common data architecture, common set of processes, GDMs, as well as common IT tools, across the enterprise. And we did a very nice job of that. And within the functions, we've operated that very, very well. But now we're entering the third phase of the evolution, which is looking at value chain, so order to cash or people planning, which is linked to financials. So our level of sophistication when it comes to digitizing the enterprise is light years ahead of what it was 5 years. And that's what really enables us to operate the business well. And by the way, why is that important? This is a key point. It's important because we want to make Honeywell easier to run and also easier to add new acquisitions because when you can add it to a solid foundation that's consistent, that's organized, that's structured, it's all better foolproof in terms of running our businesses or running our functions. It doesn't feel like a big business anymore, and the complexity goes away. And I think that's really, really important. That's why we do this. And just in terms of value added, in the last 4 years, $2 billion in value created between revenue growth, productivity, working capital. And then there's more benefit to be had, so we're actually going to accelerate. In the next 2 years, 3 years, we're going to add another $2 billion of benefits. So the real fun is just beginning now, and that's why we're so confident about making some of the commitments we're going to be making in a minute. It's these kinds of things that matter. ESG. ESG is not a buzzword for us. It is something that's become that everybody talks about. It's a bit of a shame because -- it's not a shame because we don't support it, but it's sort of become a bit of a buzzword. It's -- but it's something that we've done for a long time. Dave made a commitment to it 15 years ago, and I've kept the same commitment and doubled down on it. So whether we look at our greenhouse gas emissions; our representation, which is 20% better than some of our peers; or the diversity on our leadership team, as well as our Board, it's the best in class among our peers. But that's not enough. We need to do much, much more. And we're making further commitments, whether it's Scope 3 emissions, which we submit applications for to set a target, and we're going to be leaders on that element. We're going to be continuously focused on improving our diversity every year. We've done so for a decade straight. A decade straight, we've improved our diversity every single year, and we're going to continue. And then on governance, we're going to be releasing our EEO-1, as well as maintaining our world-class standard in terms of employee safety. Those are future-making commitments that we're standing here today and making to all of you. This is another critical point. This is a key page. We've made innovation an absolute priority, and we think about it in 2 different ways. One, think about it as a core, which is gaining market share, having innovative product solution software. Those are the things that where you can get market gains. And one way we measure that, there are many metrics, but we happen to like this, which is what percent of your revenue comes from solutions which were launched in the last 3 years? As you can see, in 2017, that number was 21%. Next year, it's going to be 33%. That's a very important statistic because it means we're innovating faster, and our portfolio is fresher and enable us to generate better financial returns and being able to capture the value of those solutions. It's a really important element. The second one, which I'm particularly excited about. I've talked to you about breakthrough initiatives. I talked to you about that 5 years ago, and there are big breakthrough initiatives, but there are also smaller ones that sort of live within our business units, and there's 36 of those. And some of them flourish. Some of them fail. But just to give you a number, in the last 3 years, we generated $2 billion in revenue from these breakthrough initiatives. And what's even more interesting, we now have 5 business units which graduated from being a breakthrough to now being a full-blown business unit, which is Honeywell Connected Enterprise actually started as a breakthrough. Quantinuum started as a breakthrough. Sustainability Technology Solution, which I'll talk more about in a minute. UAV, UAM and then cyber OT security. All of these things started as breakthroughs and became full-fledged business units. We think that that's exciting, and it's something that's going to become part of our fiber and how we operate. Whether we view it as an industrial, software industrial, whatever you want to call it, it isn't an oxymoron for a company like ours to grow organically. That's always been part of our fiber. And actually, if you look at the financial metrics, it's the best return on your capital. M&A get perhaps the headlines, but it doesn't necessarily get you the best financial returns. Investing in yourself and innovation is generally the best returns you can get. Sustainable Technology Solutions, love this business. Right now, it's about $200 million. It's going to grow 50% a year to get to $700 million by 2024. So not only is it a great business, and we're going to be transforming our UOP PMT portfolio, but it's going to solve some of the most complex and relevant problems the world is facing today in terms of the environmental challenges and lead the energy transition. So whether you look at advanced plastics recycling, renewable fuels, energy storage, hydrogen energy, we have solutions, developed solutions, not sort of R&D, with the exception of battery storage, which is a bit of an R&D. But every one of those solutions are solutions that we have today. This business has won now 8 or 9 consecutive green fuel projects in a row, and they weren't -- we weren't the only ones competing. It is on an absolute roll, and we are -- and I think that these figures could be conservative in terms of the growth rate that we're going to see. So look for this business to be the fastest-growing business in Honeywell. Long-term financial plan. As I talked about, we don't always grab the headlines when it comes to doing sexy acquisitions. It's not what we're about. It doesn't mean we won't do acquisitions, but we value -- we kind of operate still on fundamentals, which is things like IRR and NPV still matter. And we're prudent, and we take our time in terms of really assessing acquisitions and making sure that you get the return you deserve. And when you take a look at our returns on capital deployed, they've been compelling, whether it's buying back our own stock, whether it's deploying it to M&A or CapEx, which actually generates the best returns. And it's anywhere from 20% to 100% plus. And what I don't want you to read from this, which is it's a signal that we're not going to do M&A because we are. But when it comes to deploying capital, some of the other things on there are higher priority. And let's look at an example. Sparta Systems, which is an acquisition, which we made roughly a year ago, it's going to be EPS accretive after 1 year. There aren't too many software companies you can do that with. But that's what I mean by being thoughtful, doing your homework. And even when we buy a relatively expensive acquisition, it generates compelling returns for you. Because once you spend money on M&A, you can't get it back. And the road is littered with companies who wasted a lot of investors' money with useless M&A that becomes next to nothing. Again, don't read into this that we're not going to do M&A. We are, but we're going to be thoughtful about it, and we're going to be disciplined in our approach. In terms of ROIC, substantially better than our peers. I don't know, if I go back to M.B.A. school, they always taught to me this metric matters, so I still kind of treasure it, and I think it's a relevant one. And if you compare our performance versus some of our peers, we're about 50% better. So you have our absolute commitment that we're going to be very good stewards of deploying your capital, as it's not ours, it's yours. So now a page that probably all of you wanted to see, which is our new financial framework. And this is really the culmination of the heavy lifting we've been doing in the last 5 years, particularly on the side of innovation, particularly on breakthroughs. We are now a whole greater level of confident of what we can do. And it's also underpinned by favorable world market conditions, whether it's aerospace or PMT. And a lot of our markets are going to be with us. COVID wasn't great for us. COVID was not a great -- we don't have a portfolio that's designed for COVID. It's actually designed for kind of a normal steady-state business. And whether it's all the heavy lifting we've been doing in transforming the enterprise or end markets, we've a great deal of confidence in what we're going to do. So we're bumping up our organic growth rates from 3% to 5% to 4% to 7%. We also have a lot of room for growth in terms of margin expansion from 30 to 50 to 40 to 60. Our cash generation is going to continue to stay world-class in the mid-teens. And by the way, I am not including Quantinuum in that. So just to be clear, that's not part of this. That will be incremental. And then we're going to deploy at least $25 billion, at least $25 billion of capital over the course of the next 3 years. We think that, that's pretty compelling. Hopefully, you do, too, particularly for a company of our size. But that's not it. We're not just making financial commitments today. We're also making some ESG-oriented commitments today as well because it is part of our DNA. So whether it's being carbon neutral by 2035, whether it's setting a target for Scope 3 emissions, whether it's a continuous commitment to improving diversity within our ranks, our management teams, our Board, whether it's having further disclosures in terms of EEO-1 and then driving higher and higher percent of our revenue base towards ESG-oriented solutions and products. That's our ESG commitments for you for the future. So in summary, hopefully, all of you think by now that we're pretty good at our say versus our do. We've done it. We've served our financial commitment. I told you 3% to 5%, 30 to 50, we exceeded that. Now what I'm telling you is that, that framework gets better, gets better in the future because we put in the hard work to transform the enterprise, to spend time on innovation, to develop breakthroughs, to transform the internal enterprise. And I think it's been great work that's going to continue to enable us to improve the company, make it a simpler company to run, if everything is underpinned by the Accelerator, and the best days are very much still ahead. On top of that, we're going to be making further gains in terms of who we are as an ESG company. So for those of you who are holders, I want to thank you for your commitment. And for those of you who are not yet holders, it's a great time to be a Honeywell owner. So thank you. I'm looking forward to interacting with all of you later today. Thank you very much.

Ladies and gentlemen, please welcome Senior VP of Business Development and General Counsel, Anne Madden.

Thank you, everyone. So happy to be here. For those of you who have teenage kids, it's great to see you IRL. That means in real life. I'm super excited to talk to you today about ESG. Darius laid a great foundation for how important ESG is to our company and the leadership role that Honeywell is playing and will play going forward. Today, we have a world-class ESG program. It's resourced, it's instrumented, it's operationalized. And that's, of course, a very good thing. But ESG at Honeywell is much bigger than just a program or just an initiative. ESG is a common thread that weaves through all of the fabric of Honeywell within all of our businesses and all of our functions. And it's a common thread that ties together how we will shape the future of Honeywell. Sustainability, corporate responsibility and innovation have long been part of Honeywell's DNA. This is not new. Honeywell has a track record of applying our core strengths to establish and exceed targets for improving the sustainability of our operations. We're bringing these strengths to bear as we apply our technologies toward helping our customers and the world address the wide spectrum of sustainability challenges, whether they're in the area of climate change, whether they're in the area of circularity, environmental harm, safety, wellness or resiliency. We are responsible corporate citizens, but we are not just responsible corporate citizens. It's, of course, incredibly wonderful and virtuous to be a responsible corporate citizen, but we are so much more. Our ESG principles are woven throughout the 7 pillars of our value creation framework. Our deep domain expertise, our technology innovation, how we operationalize everything we do, and I mean everything, our capital deployment decisions, et cetera all embody our ESG principles. And we're incredibly proud of our legacy. We have a century-long track record of innovating to make the world a better place. Today, making the world a better place is a commitment. It means a commitment to addressing the world's most daunting sustainability challenges through innovation and investment in a portfolio of solutions that help ourselves and our customers meet their ESG objectives. This is core to our transformation journey, as you saw in Darius' slide. It is part of our transformation, and it's core to our strategy. From our industrial roots to becoming the premier software industrial company to leading in the energy transition, Honeywell's ability to achieve these ambitious transformational objectives is rooted in our strong ESG practices and an unwavering commitment to our foundational principles, inclusion and diversity, workplace respect and integrity and ethics. Honeywell has an established track record offsetting ambitious sustainability targets and applying our innovation mindset, our strong governance and our world-class operational practices to meet and exceed those objectives. Since we stood up and operationalized our sustainability program back in 2004, Honeywell has reduced our greenhouse gas intensity by more than 90%. Darius mentioned that. We've also executed over 6,100 sustainability projects in our facilities and operations, saving more than $100 million on an annualized basis. And we've transformed our legacy properties into new, highly valuable assets for those communities to live, work and play. We report these activities transparently and accurately. And we've continued to enhance the transparency of our disclosures to support our stakeholder information needs. That's all of you. I would highly encourage you to go to our website and take a look at our Corporate Citizenship Report. If you haven't done so already, it's worth the read. It's inspirational. It includes our SASB disclosures and our TCFD disclosures. But it's so much, it's just so much more. And also, if you visit our website a little later this afternoon, you'll be able to view our new ESG and -- newest ESG data and metrics, and we'll also be posting new detailed diversity data. As Darius mentioned, we've committed as well to publish our EEO-1 statement annually as soon as that's filed with the EEOC. But we have a lot more to accomplish as we move along our ESG journey. We're on track to exceed our 10-10-10 targets that we set back in 2018, and we'll achieve those, as we committed, by 2024, if not earlier. We just, this past week, signed on to the U.S. Department of Energy's Better Climate Challenge. So we're very excited about that. And of course, last year, Darius committed us to be carbon neutral in our facilities and operations by 2035, a full 15 years earlier than the Paris Agreement. And we've established a Sustainability Review Board that's overseen by officers of the company. We review and approve the capital projects that support our walk to carbon neutral. Our execution plan is resourced with a dedicated team, operationalized, of course. And we're highly confident that we'll meet or exceed our goals. And of course, Scope 3 emissions. We talked to all of you about Scope 3 emissions from time to time, and I'm very excited to be able to say that our commitment to the Science-Based Targets initiative to set a carbon-based carbon -- science-based carbon reduction target that also addresses our Scope 3 emissions is going to be a game changer for Honeywell. It's a real milestone. And of course, Scope 3, for those of you who don't know, means addressing emissions across our entire value chain. The largest portion of Honeywell Scope 3 emissions arises from the use of our customers of our goods and services, so achieving our Scope 3 emissions reduction commitment will, therefore, require us to further innovate, to further disrupt, to disrupt ourselves and others, to be able to put in the hands of our customers those products that will enable them to reduce their own GHG emissions. And therefore, we will as well. It is such an important, important strategy and one that means that Honeywell is uniquely positioned to lead in the energy transition. I love Solstice as an example for how virtuous this is. Our Solstice family of refrigerants and propellants are low global warming solutions to replace traditional refrigerants and propellants. To give you a sense of magnitude, this was an innovation that took research and time and investment. We're now over $1 billion in revenue in our Solstice family of products, and it's growing double digit through 2024, so doing exceedingly well. And Honeywell was really an innovator way back when, when traditional refrigerants and propellants were invented. And these are, of course, incredibly important products to society. It enabled healthier living, more comfortable living, improved living conditions and safety but also food safety around the world, so tremendously valuable. But some of those traditional products were climate change contributors. So our alternative products that we invented, the low global warming refrigerants and propellants are used today by our customers around the world. And when they use our products, they reduce their own emissions profile, and therefore, so do we reduce our Scope 3 emissions. So it's very virtuous. Definition of a win-win. Solstice is just one example, and sustainability is more than just a pledge. Few companies today have the technologies and the know-how to make the aspiration of sustainability a reality, but we do. Honeywell knows what it takes. We have developed substantiable solutions targeted at the sectors responsible for a full 2/3 of greenhouse -- global greenhouse gases, and we also have the right mix of technologies to help industries deliver on their wider environmental and social commitments. Great examples of our technologies that you'll hear more about a little later: battery energy storage, carbon capture, plastics recycling, thermal and power management for buildings, electric aircraft, sustainable aviation fuel and more. In 2021, Darius said, over 60% of our revenues and about 60% of our R&D spend today in new products were attributable to products and services that help address the world's sustainability challenges. That's pretty huge. We call these solutions our ESG-oriented solutions. These are solutions that address environmental, social, safety, security and governance challenges. And we're leveraging our own ESG needs as a test lab, if you will, to develop and improve upon these solutions, again, both for ourselves and for our customers. From Forge software, to track energy efficiency, to SaaS; sustainable aviation fuel on the very first flight now that's been flown using 100% biofuel; flow battery technology; aviation equipment designed for better fuel efficiency; technology to measure and correct emissions, including real time; to plastics recycling technology; and so much more, Honeywell's products are what the world needs and will help lead the transition to a more sustainable future. Honeywell has also had a long-standing commitment to inclusion and diversity. You can see on this slide, we do better than our peers across these key ESG metrics, and that feels great. Fostering diversity has been a key behavior on which our employees have been measured for over a decade and since has also become one of our foundational principles, which we're really proud of as a company. It's been a long-held belief by our Board of Directors, a good governance and effective oversight require not only diversity of experience but diversity of gender, racial and ethnic characteristics. It is no accident that half of our independent directors are diverse, and nearly half of our senior leadership team is diverse, many promoted from within, which is a testament to our careful succession planning and our retention of diverse talent. We also now require diversity of slate for all of our open roles, and that's measured, and that's tracked. We're very proud of our Women's Career Advancement Program and our Diversity Career Advancement Program, both of which were ideated by Darius himself. And Mike Madsen and I cosponsor those programs, and we're very proud of that. Our new Chief Diversity Officer, Cheya Dunlap, we're so happy to have her here, continues to elevate our governance structure. We now have 7 employee affinity networks, and those have a global Steering Committee that Darius himself cosponsors. So we still have a long way to go, but we're really proud of the progress that we've made and will make. And safety, our safety rate is more than 5x better than the industry average. This reflects our core strength in our operating system. We continue to be recognized by Ethisphere as one of the world's most ethical companies, and we hold our employees, our service providers and our suppliers accountable, to be responsible and ethical as well. Through strong governance and a rigorous operationalized ESG program and a commitment to our core values and corporate responsibility, Honeywell has established a decades-long track record of strong ESG performance and setting and overachieving our ESG goals. And we're super excited to take our ESG game to the next level, both for ourselves and for our customers, as we establish ourselves as the leader in the energy transition. And we're holding ourselves to ambitious sustainability objectives, not just today, but in the future. We'll continue to apply our innovation mindset toward developing ESG-oriented technologies that will help our customers address their toughest sustainability challenges. I think you're going to really enjoy hearing from our business leaders and our functional leaders a little later on that topic. Leading in ESG is a key strategic accelerator for Honeywell. It's already a key revenue driver for all of our businesses, and it's the common thread that ties together how we'll shape our future. Thank you.

Ladies and gentlemen, please welcome President and CEO of Honeywell Connected Enterprise, Que Dallara.

Good morning. I'm really pleased to share with you the progress that we've made in Honeywell Connected Enterprise, in this business that we set up more than 3 years ago. The first is extremely strong customer momentum as evidenced by the double-digit growth that we've seen in the business, and this is driven largely by our recurring revenue which is growing even faster. We've had tremendous feedback from our customers, and we're accelerating this with the tuck-in acquisitions that you saw last year in Sine and Sparta but tremendous financial performance in the business. The business is entirely aligned to the megatrend around digital. And when you look at the industrial world, the level of adoptions around digital to drive operational excellence and to streamline how our customers run their complex operations. It's still in the early days, but Honeywell Forge is in the bull's eye of the opportunities presented by the digital trend. And then lastly, the business is already margin-accretive to Honeywell, and this is driven by high margins in our software products. And this is true both in the on-premise software part of our business but also our faster-growing SaaS portfolio. And might I also add, we're also contributing in an indirect way through the innovations that we're doing with our colleagues in the SBGs who are leveraging Honeywell Forge to build a business around and enhance their software offerings to the benefit of our customers. So super exciting results so far. When you look at this market, it's $100 billion in size, growing double digit, and we aim to have more than our fair share of this market. Where we're focused on are these 5 market verticals. And these are the areas that we're focused on, primarily because we're bringing the vast install base that Honeywell has, which is a significant advantage when we're trying to bring new products out to the market. Now even though these end markets look very different, they actually share common characteristics. They're asset-heavy industries. They are typically have some compliance or regulatory requirements. They have complex underlying technologies, and they have a broad frontline workforce. And so when you think about if you're running a building or a factory, you're trying to think about how do you optimize production. It's the same problem in a building, it would be how's my portfolio health. In a factory, it is how do I get more production but maintaining my sustainability and safety goals. It's a common problem. That's where we see the core innovation that Honeywell Forge is targeting. So we've built a team, 3,500 employees. More than half work in software development, and we have a very strong foundation of data and AI expertise within the organization. So what problem are we trying to solve? We've all seen how SaaS has automated almost every corner of the enterprise, whether it's finance, HR, sales and marketing. But in the area of operations, supply chain, this revolution has been -- is still in its early days. And why is that? The reality that a lot of industrial firms face is actually a little bit more complicated to do this at scale. This is because when you break down the anatomy of a factory, it's comprised of systems and components that are often proprietary coming from dozens of vendors. These sites are not static. They're living organisms. They change and very different than what the blueprints were when it was constructed. Many operational technology systems run the plant, whether that's a control system, alarms, historians, energy management systems, safety and environmental concerns. So you can have changes in your -- how your machines operate. Market conditions change, what raw materials come into the plant. So if you're thinking about how do I optimize all of this, this becomes a multidimensional problem that you're trying to solve. And this is a very hard problem to do because all these systems are so disparate, it becomes very hard to move data from one system to another and to be able to optimize this. This presents an incredibly difficult problem for site operators to manage. And what you see is, as a result, everything is manual. And the spreadsheets, these are real spreadsheets of hundreds of spreadsheets like this run by hundreds of people in a typical industrial site. It's a very complicated problem. So Honeywell Forge solves this problem by virtualizing these OT systems in the cloud, bringing together data, processes and these systems into a low-code, no-code application, applying Honeywell's knowledge in the form of algorithms and AI models and deployed on a single SaaS infrastructure. And this is very powerful. What we didn't do was take shortcuts by containerizing on-premise software in the cloud, and we're not providing a set of analytical tools for people. It's actually mission-critical software that operators use in the flow of their day, and they're able to configure it in run time, and that's the key power of what we're doing. So when we think about the progress that we've made in this business, the -- we've been able to monetize this significant opportunity to automate all these spreadsheets in the form of SaaS. And we're seeing that come through in double-digit revenue growth with a recurring content that's even -- growing even faster than that at 24% CAGR. Even last year, we grew at 30%. So we're seeing an acceleration in the recurring revenue. The fact that we've built these applications on one single SaaS infrastructure that's persona-based, so if you are logging in as an operator, you're going to see the application be personalized to you. If you're a maintainer, it looks differently. And we monetize this through SaaS-recurring revenue. As more and more of HCE becomes recurring content, we're going to compound the margin impact that we have on Honeywell in an extremely accretive way. And it is our intent that HCE becomes a bigger part of Honeywell in the long run. The other part that's worth mentioning is Darius talked a lot about innovation, and we formed a group we call Forge labs within HCE. We work very, very closely with our SBG colleagues to drive a very robust innovation funnel of ideas where we can present joint value propositions to the Honeywell install base centered around Honeywell Forge and enhancing what we already do for Honeywell through the build -- design build and operate stage into performance. I'm really pleased with the progress that we've made in the last 3.5 years. The momentum that we've seen is incredibly strong, and it gives us a lot of optimism and encouragement for the future. Thank you.

Ladies and gentlemen, please welcome President and CEO of Honeywell Aerospace, Mike Madsen.

Well, good morning, and it's great to see everybody. And I think it's especially exciting to be here today to talk about aerospace. I can't think of a time in my long history in this industry where we have been better poised as an industry or as a company for a tremendous success as we look forward. First of all, tailwinds. The industry is looking at the next growth cycle right now, and there are some very substantial tailwinds, not just for the industry, but for Honeywell. We have yet to see narrow or widebody aircraft come back to their 2019 levels. In fact, they're still flying at less than half of where they were in 2019. And I think we all recognize the revenue and income growth that comes when those aircraft come back into service this year or next year. Second is the exposure that we've got to some very attractive platforms in every market. If you think about the business aviation market, the globals, the Gulfstream platforms, Embraer with the Praetor aircraft, Textron with the Latitude, Honeywell has strong propulsion and avionics positions on every one of those aircraft. Same way in air transport. You look at the A350, which is kind of the widebody of choice right now, very strong mechanical position on that aircraft. And of course, on defense. We don't talk a lot about defense, but we've got very strong positions on the F-35, the B-21, ground-based strategic deterrent, platforms that are going to be relevant for the next 25 years as the defense focus pivots. Best-in-class positioning for the future of aviation. We'll talk more about this, but urban air mobility and unmanned aerial systems, Honeywell is in a nearly unique position to satisfy that emerging market. You'll see what we're doing there. We're also investing for growth in those spaces as we look at not just electric motors for propulsion but compact fly-by wire, our Anthem avionics systems, the compact -- the digital flight controls, and of course, the cooling systems for those aircraft. And also, we have a very strong portfolio of connected offerings for those aircraft. Last but not least, around productivity. I think everyone recognizes we already have a leadership position amongst our peers in terms of cost management and margin, but we're not done. Lots of opportunity remains here as we do some of the things that Darius talked about around digitizing our business, and in particular, improving our machine-to-machine interactions with our customers and our suppliers. Not only does that help us with productivity, but it makes us easier to do business with. It's a growth enabler for us. So the market outlook, I talked about the fact that it's an exciting time to be in the aerospace business right now. Widebody flight hours still less than 50% of where they were in 2019, all of that growth in front of us and 3x the revenue per flight hour that we get on a narrowbody. So you can see what the accretive impact of that will be as that comes back. Business jet flight hours are already above 2019 levels but still growing. We have yet to see the business traveler fully come back in that market. So that's still in front of us. We all know about the production ramp that's going on, not only in business aviation, but air transport. We are positioned very, very well to participate in that growth as we look forward. And we still see a strong need for efficiency. Everything we do is about efficiency, productivity and safety. Never has that been more important than right now. The airlines are coming out of 2 years of very, very difficult economic circumstances. Retrofits, mods, upgrades and the inherent value in the products that we put on those aircraft are going to continue to add value for Honeywell and for our customers. So let's talk a little bit about the investment priorities. I've highlighted a few here. We've maintained our investments through the downturn. We've maintained those investments as a percent of sales, and those investments as a percent of sales are going to continue to grow. We can do that because we've already got our house in order relative to cost. Our margin rates are where they need to be, and we're going to be able to continue to expand through digitization, automation and RMU sales. We're going to talk about that some more. Right now, we've got opportunities in various market areas with all the products you see in the technologies you see on this page. If you look at next-generation navigation for defense, as well as the urban air mobility market, the cockpit, the Anthem cockpit that we launched in October, which is applicable, not only to the UAM/UAS space, but also business aviation, general aviation, air transport. Vapor cycle cooling systems, you may not have heard much about this, but more electric aircraft bleedless engines are going to need different mechanisms for pressurizing, cooling and heating the cabin. We've already got systems available from 20 kilowatts to 100 kilowatts for different types of aircraft in this space. We're selling these products today. And of course, military turbo shaft and next-generation business aviation. You all heard about the win that we had with the Sikorsky-Boeing platform on the FLRAA helicopter. We're very confident in their position relative to that Army competition, and that's a $30 billion opportunity for us. But that's not the only place we're making investments. We've also got a cooperative research and development agreement going with the Army on the T55, and we've launched development of a next-generation HTF7000 engine. And then in the middle, decoupled revenue. This is what helps us continue to grow faster than the market. Decoupled revenue in the form of retrofits, mods, upgrades, next-generation satcom systems that work with multiple constellations, Hybrid power. You can see there a picture of a solid-state fuel cell that we have for hydrogen fuel cell, moving us away from gaseous hydrogen into solid-state fuel cartridges. Over $800 million in revenue last year from these. It will be over $1 billion by 2030. The future of aviation, unmanned aerial systems, urban air mobility. We're the industry leader amongst our peers in this space, and we think that we're uniquely positioned to continue to provide systems capability to the OEMs in this space due to our class-leading capabilities, our portfolio, our experience with systems engineering and certification, as well as our global footprint and the technologies that we bring to bear on this problem. These customers need us, and we're happy to be partnered with them. Importantly, all of the technologies that we're developing in the space are not bespoke and unique to these market applications. If you look at the cockpit solutions, you look at the cooling systems, compact fly-by-wire, small form factor satcom, all of these can be levered into other market verticals, which derisks these investments. And I would also add that our customers have made significant contributions to the development costs for these systems as well. Sustainability, Anne talked about this. This is woven through everything that we do in aerospace. Everything that we do is focused on safety, security, productivity and efficiency. We're accelerating investments in the technologies that are going to maintain this focus into our future: SAF-certified APUs by 2025, 100% sustainable aviation fuel by 2025; fuel efficiency software enhancements for APUs and engines; flight management enhancements that are available today to reduce fuel consumption; hydrogen fuel cells, both in form of compressed gaseous hydrogen, as well as solid-state fuel; high-power generators that are in test now; and electric propulsion, all of which prepares us for the future of aviation, not just in these new market areas, but the existing ones. So in summary, we continue to shape the future with the technology investments that we bring forward as well as our execution capability, low- and no-carbon technologies, next-generation engines, cockpits, mechanical systems and components and our services offerings. We're advancing breakthrough initiatives in areas like LiDAR, weather detection, advanced coatings, vapor cycle cooling, small form factor satcom, sense and avoid radar and doing this not just organically but inorganically through the acquisition of properties like Ballard Technologies and Rocky Research that we concluded a couple of years ago. We will continue to expand margin. We're not done with this. We have lots of opportunity in front of us despite the increasing investments, significant opportunity to digitize our business internally and in our exchanges with customers and suppliers. And we think that we're well positioned to disproportionately participate in the growth cycle, which is now upon us. We're very excited about what that brings for us this year, next year and for our customers. Thank you.

Ladies and gentlemen, please welcome President and CEO of Honeywell Building Technologies, Doug Wright.

Thank you. Good morning. I'm really excited to stand in front of a room full of people and talk about Building Technologies, so thank you for the opportunity to be with you all here. So today, I'm going to cover 3 key points. First, our industry is in a strong secular growth phase right now. Worldwide commercial buildings continue to be kind of a bright outlook from a top line standpoint. Particularly, we continue to see sustained growth in our healthy buildings portfolio. We reported to you last time that we've done just -- we did just under $400 million in bookings last year with nearly a $2 billion backlog, and we continue to see that pace continuing. In addition on the healthy buildings, sustainable buildings is sort of the new challenge of our industry. I'm going to talk about that in detail in a couple of slides. Secondly, we are blessed with a differentiated core portfolio. We are leaders in our industry among many of the building domains that we serve, but we now have significant upside that we're going to talk about from digital, our partnership with Que and her team and now the addition of sustainability. And finally, we are a leader in our industry from a margin performance standpoint. I think we're a good investment. And that will continue to accelerate. And I think you're going to see today, particularly in the demos, you're going to see the new technologies that we're bringing to market that's going to allow us to accelerate our top line growth rate in the future. So let me shift to that subject around the growth framework. So we define our growth framework around 4 key pillars and 2 what I call crosscutting themes. So the first is our core growth. So there's 3 elements of our core growth strategy. We talked to you 2 years ago about our verticalization of our business and that -- we continue to benefit from that. It's how we animate our technology investments. It's how we differentiate in our marketplace, and it's how we focus our energy around the key issues that those particular verticals need. Secondly is around our services transformation. We have a very large service organization. We've been focusing on digitizing that, and we've seen the benefits of that. And services is also a really important part of the sustainability challenge that we're going to talk about in a moment. And finally, our HGR performance has been very, very good. I believe that we are among our peers of the strongest, and we have positions -- strong positions in all of the key HGR poles, and we continue to benefit from those long-term investments that Honeywell made many years ago to put us in position to serve customers in the developing markets. So then those 3 areas really give us the ability to grow in line with the marketplace. We would be tied to -- whether it's the ABI Index or Dodge Data, it would give us that sort of basic kind of commercial buildings growth rate. So how do we differentiate? There are 3 areas that we're focused on. First is around healthy buildings. When we entered the pandemic phase, Honeywell made a big investment in helping our customers support their healthy buildings' needs, whether it's clean air, touchless technologies, et cetera, to help our schools, our hospitals, our commercial buildings that you're part of today become healthier for the new challenges that we were facing. That is not slowing down. In fact, it continued to accelerate. Consumers, parents, building occupants are still very concerned about the healthy buildings, and we have a lot of unique technologies that we brought to bear. Kind of going around clockwise, breakthrough initiatives. As Darius talked about earlier, this is really how we incubate new ideas. And there are several $100 million businesses inside HBT today that were part of that journey of starting with a basic idea, forming a small team, incubating it and then getting it ready to take it to scale. And we think this is a key area that I'm going to describe an example of that in a moment. And then sustainability. So you know sustainability is actually a pillar and a crosscutting theme. There's a reason for that. We recently created a new sustainability business inside HBT, really the learnings -- we took the learnings that we had from our Healthy Buildings initiative, BTI, and we then combined that with our energy services business. So we've now recognized that there's a huge opportunity for us to serve our customers in a very specific way around sustainability, and I'm going to talk about that in a moment. The reason it's a crosscutting theme is that it's really driving investment across our entire portfolio, whether it's in our fire business or in our BMS controls business or in our services business, sustainability is driving a rethinking of the way we look at building systems because the balance of carbon in a building is fundamentally different than managing energy in a building. And I think this is an area that you're going to see Honeywell invest heavily and making sure that buildings can meet their sustainability objectives. And then a key way that we do that, along with the other great capabilities that we have, is around our software and digitization investments. We work in very close partnership. In fact, Que and I occupy the same building in Atlanta. Our teams work very, very closely in driving software into the building technologies. This has also helped us learn how to digitize faster. We've now digitized a significant portion of our service business, which, particularly if you think about COVID needing to have more building automation, lack of labor for service technicians, it's really allowed us to provide different streams of value through the investment in digital. And finally, I'm going to give you an example in a moment about how we've actually deployed digitization to provide actually completely new outcomes to our customers, taking that internal capability and showing it as actually a new product to our customer. So sustainability is what I define as a generational challenge for our industry. There is no bigger motivation right now among our customer group than driving sustainability. And I think that Honeywell is in a unique position to lead this transition. 38% of the carbon produced in the world is related to a building. So we simply, as a society, will not meet our carbon footprint objectives without improving the carbon footprint of buildings. And we think that as an important responsibility and also an important business opportunity that we're going to take advantage of. So if you look at the left-hand side of this chart, this is the traditional way -- the traditional building systems that we've been in for decades. Our forefathers invented these technologies that we take to market every day in these ten -- thousands of buildings across the world. And we go in every day and we make buildings more productive, make them safer, make them more energy efficient. But our customers now are focused on the items on the right, these sustainability outcomes. How do I decarbonize my footprint? Maybe I have multiple buildings or I'm a school system with 400 schools that I'm trying to decarbonize. How do I prove it to my auditors or to my regulators? And so the problem is becoming much more complicated. So what we've done is we've started focusing principally on using software and automation to solve that problem. So we take our legacy domain knowledge, which we have very, very deep capabilities in building systems. We take these new outcomes and how we apply software and digital capabilities, and that really brings us together with that marriage of technology and knowledge to provide things like being able to continue to evolve our digitization of our service capability, being able to take this, Que talked about, disparate set of data coming from all these different building systems, and the building systems themselves are becoming more complicated. We have to be able to integrate that in. And then we bring in supervisory controls to allow our customers to provide one point of view there. So this -- the result from an investment standpoint is that this sustainability business will be a $1 billion business for HBT in the plan cycle over the next 3 to 5 years. So now I'm going to shift to digitization. And we talk about digitization a lot inside Honeywell, and I wanted to be clear that we do benefit from the digitization of sort of driving productivity in our internal operations. But digitization in this context is really looking at a new product that we've created. So this is an example. Most of you are aware, our fire detection and alarm business is a leader in its category, and we've got a -- we serve a very large $7 billion TAM. It really is a great part of our portfolio. But it grows basically in line with building construction. So what we identified through our BTI activity is that we could look at the downstream system of that -- what happens to an alarm as it goes out to a 911 center and ultimately to a first responder. There's a whole ecosystem. In fact, there's a $5 billion TAM associated with that part of the ecosystem that, as a fire alarm company, we were not participating in. So we've now invested in that ability. And from a digitization capability, what we've done actually is similar to what we would see in an internal digitization project. We've actually can reduce the -- in this ecosystem, the way they define their value is how fast the firefighters get to a building that's in trouble. So we've actually shown with technology that we can reduce the response time of a firefighter to an alarm by 50%. So this is what we call digitization of life safety. It's a very, very important value proposition. Obviously, we're all occupants of buildings. I think we would agree getting the firefighters there faster is a good thing to our municipalities. They are very serious about that, and this gives us both the opportunity to do good by improving life safety but also creating an important, new, high-growth revenue stream for Honeywell. So quite often, when I meet investors, they ask, what differentiates you from your peers? How is HBT differentiated from the HVAC players or the power equipment players? So on this chart, you can see on the left-hand side are the things that we have to do in a building to keep it safe, to keep it productive, to keep it sustainable, and we've listed the HVAC peers and the power equipment peers. And the way I would define it is that we have good peers that focus on individual parts of a building system. If you want to have a really efficient HVAC system, there's a lot of players out there that can bring that technology to -- and we use that technology and our solutions with our customers. But the problem of actually integrating all of this together and we have to look at any building system and bring it in a holistic way, that's a software and a controls problem. And we believe this is where Honeywell differentiates itself. And particularly, as we're moving to the era of cloud and SaaS capabilities, the work that Que and her team have been doing and the work that we're doing is completely aligned. And this is really where we think we differentiate. We need the heavy equipment focus. The heavy equipment providers are needed. They're part of the equation of how we reduce the energy consumption in a building, but controls and software is really the way that we think is the way we create value for our customers. So then finally, I'd like to summarize by saying that we remain committed to being the leading margin performing player in our industry. We are blessed with great franchises in our product lines. We have a great -- we're just like any good Honeywell business. We've got a great operating system, and we execute well. And we'll continue to do that. We're now signing up for a mid-20s operating margin over the planned cycle. But then adding on to that, we're now committing new growth investments, and that Honeywell's unique software capabilities will actually increase our growth profile to the high single-digit level. So we'll be able to get from that mid-single-digit growth profile to higher single digit through those technology investments. And the key that I want to leave you with is that sustainability is really, for the rest of my career, will be the biggest challenge that we face in our industry. And I think Honeywell is in a very important position to lead it, and I think that is going to give you, as investors, a good return on your investment. And I think it's also, as industry participants, going to allow us to help our planet meet its carbon footprint goals. So thank you. I look forward to seeing you in the demos later today, and thanks a lot.

Ladies and gentlemen, please welcome President and CEO of Performance Materials and Technologies, Vimal Kapur.

Good morning, everyone. So pleasure to be here and talk about the PMT story. I think from a PMT perspective, there are 2 key messages here. We really did well in 2021. The recovery in 2021, as you have seen from our financials, was pretty strong organic growth, margin expansion, and we do expect to maintain that same rate in 2022. Our backlog is strong. Our order rates are pretty strong. So I first want to say that our operational performance really remains very strong and something we feel very confident about. But what I really want to talk about is the 3 things we are changing in PMT to make it even more strong and robust portfolio. And really make part of Darius' commitment of higher organic growth, we are going to be part of it. And we're going to do that by 3 changes we are making in our portfolio at a very fast pace, much more acceleration on sustainable offerings. As our customers are refining their portfolio towards ESG, they need the new PMT offerings, and I'll talk more about that. At the same time, we're also taking benefit from 2 megatrends of digital and life sciences transformation of the whole universe, and we are actively participating in those 2. So as we look at those 3 key drivers, sustainability, digital and life sciences, and compound that with our base business, that's going to give us a higher growth rate compared to our past, and that's kind of our story I'm really going to talk about. So let me first jump into the sustainability story. We launched this breakthrough program in early 2020. That's the time we started seeing customer demand really increasing for sustainability solution. That's where ESG companies started making commitment. We're going to be ESG neutral, 2035, 2040, 2050, pick your choice. We saw within 1 year, and we promoted this business to be a full-scale business, Sustainable Technology Solution. And if you see this bottom chart, this business, over the last 1 year, have launched many new offerings. The offerings on biofuels, on hydrogen, on carbon capture, on flow battery. And yesterday, we announced our participation in green hydrogen production. The question is, how quickly -- how come these offerings are coming more quickly? This seems a little bit unreal. How is this possible? The possibility comes from the unique background UOP has over the last many years of foundational technologies which enable this innovation to happen at a very short period of time. Those foundational technologies include UOP's deep knowledge on renewable fuels, deep knowledge on hydrogen economy and deep knowledge on membranes. So membrane is a great example. That's what we are using our expertise and really transferring to the green hydrogen. So this is not like an overnight inventions we are doing. This is really building upon something we had historically and ramping up on that. So what's that really creating a market size of $12 billion, which, in my view, is going to change very rapidly due to 2 reasons. One, our offerings are going to keep expand. And of course, our competition peer group, they're bringing new stuff. So market keeps expanding because this is a rapidly changing space. And number two, the adoption driven by policy or compliance. That's going to demand customers to adopt these much more quicker, so that expands the SAM. So when you see the CAGR rates of 12% to 15%, I would argue probably this may be likely on the upper end or even higher, depending upon how this shapes up. And if you see our position in that, orders up $300 million last year, going to compound very quickly this year. And then the revenue, of course, lags. It's a long cycle business, lags about a year. So you can see how this is going to shape up for us. One clarification I want to make is that all this revenue is incremental, primarily because I'm talking the UOP business, we should not go with the thesis here that the base business is going to shrink, and this is going to be displacement of that. That's not true. The core platforms which our customers have, they still are running them, may not be investing them as they were investing in the previous decade, but you still need to run your refining petrochemical plant. They still buy catalyst from us. Or in our Process Solutions business, they're still buying our services because those facilities need to run. And at the same time, there are still investments being made in areas like petrochemicals because they are not Scope 3 emissions, and we all need them. The investments being made on gas, all of a sudden, with the realization of gas being a critical bridge technology. So our base business remains growth rate of the traditional GDP while we are seeing the compounding effect of sustainable technology. So I really want to clarify that this is not like a subtraction equation. This is an addition equation. Now you can say, okay, how the story is believable? I mean, anybody can come and print this chart, but what not many people can do is print the next chart. This is only Honeywell can print. You look at our offerings on the left-hand side, they really segment into 4 offerings: the net-zero offering, circularity, energy storage and emission efficiency. Very vast set of offerings which we bring. And see the customer adoption rate on the right-hand side, the proof point that we are winning in the market. I'm going to narrate some of them. In renewable fuels, 26 Ecofining units, 2-6. I'm not aware of any other company which has licensed so many units in such a short period of time, and we are just starting. Because as the world adapts more renewable fuels, number of units are going to increase. That gives the UOP license work, that gives them engineering work, that gives them the work for catalyst over a long period of time. BP is a great example. In this business, we are also adding second- and third-generation technology because renewable fuels are constrained by supply side. They are not constrained by demand side. So you need new technologies to create new renewable fuels, and we're actively working on that. Some great examples on Honeywell adoption of technologies in clean hydrogen and carbon capture with the projects like Wabash Valley Resources, one of the largest projects happening in the earth today. In the circularity, we are creating a new market by taking the waste management companies, helping them create a new product and then selling that product to traditional refining petrochemical companies. Already announced 2 joint ventures so that we can prove that this market exists. This is a doable business model, so we are putting our skin in the game. And we announced 2 joint ventures: 1 in Europe, in Spain, Sacyr; and 1 in U.S. with Avant Garde Innovative Technologies. These are going to produce a polymer from waste plastic which will be recycled back into a petrochemical unit. What's the proof point? Total has already signed up for takeoff of our product when the plant is set up. And all these customers are actively looking for this technology because it gives them a pathway for their Scope 3 reduction. They also are looking forward to it. So this is a great technology for them, and of course, all the issue of circularity in our planet. Energy storage, we are actively working on both side of energy storage and upcoming technology on battery storage but also controls, which is a new area which is emerging. Because as old utilities will go away and wind and solar will come, it opens a new opportunity for us because wind and solar cannot work without storage. When the sun shines, we are sitting in the office, we need the lights in the evening, so you need storage so that it comes up. And storage control is a new segment. More than 100 megawatt of control projects we have already won with our storage in a very, very short period of time, and this is going to rapidly grow because it's a totally new space on how do you do storage controls, how do you do grid synchronization, how do you build virtual power plants, a new area, a very exciting area for us, and we're actively looking at it. And I didn't want to forget -- for you to forget the bottom, the Solstice molecule. This is not part of our STS business, but that was just a reminder. And Anne already mentioned, a $1 billion business, and we are not stopping. Continue to have new innovation. We announced innovation with AstraZeneca of creating a new application for inhalers that opens a massive new segment for us because using our propylene of Solstice, they are able to reduce their Scope 3 reductions. So massive set of opportunities across the board. But I also want to talk about the other 2 opportunities of digital and of life sciences. On the digital side, this is really enabling the growth of HPS business. HPS business, of course, grows. I would say if you look at the market, 80% of the market is the traditional controls, and 20% -- by 80/20 rule is really enabled by digital transformation. And if you see wheel in the center, we have a pretty extensive set of offering to enable digital transformation of operational technology of our customer. So that comes -- a large part of it comes from HCE, Que's organization. But there are many offerings within our core Process Solutions business, and our customer sees this wheel in the center, what you see. So they start with modernization of control system. And you can say, how come modernization of control system is digitization? Think about it this way. If we have a computer of 2005 which has XP running on it, can you run your modern applications on that? The answer is no. So you first need to upgrade it. You need to buy iPhone 12 or 13 before you want to use the new app. Same is true for control system. If you want to monetize data, you need to first upgrade the old control system. And who has advantage? Honeywell because we have a massive install base over the last 40 years, and that's opening a very, very large market for us to upgrade our old control system in a seamless way because we do that in a very unique manner. Once customers do that, they really monetize application on process asset performance. Worker efficiency come from HCE business, so we work seamlessly with them. Then on data analytics, again, everybody thinks that's a big market, which is true. It's a high-growth market, but Honeywell is a leader in that. The proof point is the largest oil and gas company in the planet, Aramco, chooses to form joint venture with Honeywell to monetize their data. Think about it yourself. Why did they choose us? They had many choices. Why did they close Honeywell to monetize data amongst any of the peer choices they had? I think there's no better proof point on that. Other segment we are opening is autonomous operation. You're going to see the demo in the afternoon on that. We think about autonomous cars, but we are working to more autonomous plant. It opens a totally area of opportunity for distributed assets. Think about mines. Think about upstream oil and gas plant, think about solar and wind assets. Think about terminal for storage of the products, they need a different way to run. And that opportunity is opening a new segment for us. And we perfected that over many years working with Codelco, which is the largest copper mining company in the planet. We're working with them for more than 10 years and really have looked at how to build this operation very autonomously. So all in all, this is really enabling us to give a huge growth into $1 billion space we have, and that really definitely allows us to grow at a faster rate in our Process Solution business. But in Process Solution, we are not looking that alone as growth vector. Another thing we are doing is we're actively moving that business into life sciences, and that's the third growth vector I want to talk about. Life sciences, we actively invested into our product into Experion, which is the base controls. But Que's business made 2 acquisitions in Sparta System, and then we made an acquisition in Performix MES. So that makes us a pretty comprehensive player in the pharma space, and we are able to actively participate in the space and compete quite effectively with our peers, and I really feel this is going to enable our growth. But at the same time, Honeywell has a strong position in life science, another segment, too, in drug delivery and equipment. We are a big participant, for example, in medical oxygen concentrators. I don't know many of you are aware of it. In COVID, that equipment class really took a growth rate like this. And UL is the largest oxygen concentrator manufacturer in the planet. They probably have very high share. They exclusively partner with Honeywell to take our absorbent so that it can produce pure oxygen, 99-point, very, very high purity. So those are the examples how we are very thoughtfully looking at life sciences segment and continue to expand our business, $500 million. We couldn't have printed this number a couple of years back. We already are at $500 million, and we expect this is going to be double-digit growth. So taking these 3 compounding of 3 growth vectors, which you see in the center, it's a very focused strategy, focused on sustainability at a CAGR rate of 50%. Darius has talked about it. Focused on life sciences and focused on digital, really gives us the confidence that we can up our commitment from MST, now to MST to HST because it is going to enable us to give a higher growth. And at the same time, we also believe that our margin rates will continue to expand. We did that in '21. We're going to do that in '22. And investments we have made in supply chain transformation and digital, they're going to enable us and with the mix change to deliver that performance. So I remain really confident and optimistic that we're going to have strong 2022 and transformation of PMT to continue, so thank you very much.

Ladies and gentlemen, please welcome Chief Operating Officer for Safety and Productivity Solutions, George Koutsaftes.

Good morning. It's an extreme pleasure for me to be here today talking to you about the Safety and Productivity Solutions business. As many of you may know, I've been with Honeywell for over 13 years, all that spent with Vimal and his business in Performance Materials. And it's an extreme pleasure for me to have an opportunity to now lead the Safety and Productivity Solutions business. I'm just about finishing my second month in the role here. And a couple of things that I've learned is, one, we have world-class technology with strong market positions in key macro markets that have great growth trends, which I'll talk about today. I'm excited about the opportunity to build on the momentum that John Waldron and the team that built upon and grow in this business and taken to another level. So my 3 key messages today are, number one, align with key macro trends with strong growth opportunity in retail, e-commerce, health and wellness, as well as in sustainability and new energy. Collectively, these represent over a $60 billion market opportunity for us, addressable market opportunity for us with high single-digit, low double-digit growth opportunity. We have strong core positions in those segments with record backlogs today. Second point, we're going to foundation that core platform of offerings with that strong backlog with new offerings, connected warehouse, connected worker and robotic applications. Those opportunities for us already represent a $3 billion additional addressable market opportunity for us with high growth rates and highly accretive margin profile for our business. And third I'll talk about is improving our margins. This is one of my top priorities for this business. I've done it before in PMT where I drove 400 basis points margin improvement in Advanced Materials while driving growth, and I expect to do that here. So let's focus on these attractive markets we're positioned in. First, in retail and e-commerce. We already have strong core positions with our Intelligrated offerings of conveyors, sortations, storage and robotic applications. And with our Productivity Solutions business, we're also in the retail and e-commerce with strong positions there as well with our scanning applications, mobile computing applications or voice technology applications. Collectively, we've built a $10 billion install base of customers today with all of those offerings, and it's able to generate over $700 million of highly accretive aftermarket service and parts business. That platform is now being supported by these new connected offerings I mentioned in my opening remarks. We have a connected warehouse offering solution as an example, which you'll hear about later today in the demos, where we've been able to deliver an application that has predictive and preventive analytics delivered to the warehouse that's sitting on top of our warehouse automation systems that's able to drive over 20% productivity inside of a warehouse we've been able to demonstrate. Second, robotic applications. We've launched a robotic depalletizer application, and we've demonstrated with core customers already today. It's called smart flexible robotic depalletizer. It's armed with vision and machine learning capabilities. We've demonstrated with our customers the ability to drive over 30% to 40% productivity on a very manual operation, and we're really excited about the pipeline we have to grow that business. So let me turn our attention to health and wellness. What you may not appreciate, our advanced sensing technology is a core technology layer in medical device and critical care applications that are used every day, such as insulin pumps, ventilators, dialysis machines, et cetera. We do 3 core things with that technology: we measure fluid flow, air flow and pressure. By being able to do that, we provide a critical application component inside those medical devices. We're working with over 70% of the top 25 medical device companies today who have built their -- our sensors into their units. As a result of that, we've been able to generate over $200 million of lifetime wins today of revenue, and we have a pipeline of over $500 million of new business wins we're pursuing. Now let's switch our attention to new energy and sustainability. This is a $7 billion addressable market for us today with our gas detection and monitoring capabilities. The ability and the need to measure harmful gas emissions from industrial processes that come out of chemical plants, oil and gas refineries and semiconductor facilities is already an existing opportunity for us. We're well positioned and growing in. But further to that, as you heard throughout today's presentation, the importance of measuring emissions and sustainability is also something we do well and can contribute value to our customers who need to measure their carbon emissions. Let me give you 1 small example of that. Our Rebellion technology. This is a company we bought in 2019, and they have second to none technology. It's a camera-based hyperspectral infrared vision technology, which allows that camera to detect harmful gas emissions like methane or CO2 at over a mile away in less than a second. They are a leader with this sort of technology, and you can only imagine, as now we're now seeing gas is reemerging as an important fuel source for us, how oil and gas companies want to work with us adopt the Rebellion technology into their portfolio. So collectively, we have a $20 billion addressable market -- excuse me, $40 billion addressable market in retail and e-commerce, $15 billion addressable market in health and wellness and a $7 billion addressable market in sustainability. These are very attractive for us, and we have good platforms in those categories. Let's focus our attention now in Intelligrated. Since 2017, we have -- drove revenue growth by over 25% on a compounded annual growth rate. That has allowed us to build an install base of over $8 billion of customers out there in the marketplace using our technology. But why have they done that? I've talked to our customers, and here's what you need to know. We have best-in-class uptime performance inside of a warehouse, best-in-class low package loss performance and best-in-class worker productivity with our solutions. That install base of over $8 billion is highly valuable to us. Why? Because over the last 3 years, 4 years, we've actually tripled our LSS service revenue, which is highly accretive to this business. So the business model is proving to be true, and it's paying off. It's highly accretive margin business for us, where we're providing aftermarkets and service. And that will only continue to grow as our install base will continue to grow. And again, that aftermarket service revenue, which is highly accretive to this business, will be foundation-ed by our ability to provide connected worker and connected warehouse solutions to them, which we've developed and are launching today. And as a result of that, we're having a different conversation with our customers and our competitors are. We're providing a full suite of solutions to drive productivity inside that warehouse. And we're building a bigger competitive moat that will distance ourselves from our competitors as we move forward. Now let's talk about operational excellence. You heard Darius talk about the accelerated playbook. Well, that's a playbook I know well. I drove that playbook in Advanced Materials by driving 400 basis points margin improvement in that business. We're going to apply this in 2 realms. First, commercial excellence. We're arming our salespeople with better tools and capabilities to be more productive in the marketplace. We're taking away from them nonvalue-add activities, and we're training them every day on pricing and value -- pricing passing through inflation and on value pricing. That's critically important that you arm these sellers with frontline information like that to drive value for our products, and that's what we're doing. We've been able to drive single-digit productivity for our sellers in this business, and we're going to continue to do that with those toolkits. Also, we're arming ourselves with more digital tools. We're investing over $8 million in this year alone on upgrading certain digital tools like Salesforce.com, getting more value out of that tool for our sellers, but also in e-commerce platforms and digital channel portal platforms, which will increase our engagement with our customers, improve our service time from order to delivery and overall better customer experience. On the operational side of things, it's all about simplifying our supply chain. We're going to reduce the number of our suppliers in our supply chain network by over 15%. That will increase supplier reliability because we're going to concentrate our efforts on the more strategic suppliers. One, it will simplify our planning, lower our cost to serve and ultimately, better service to our customers. Second, SKU rationalization. We've already reduced over 30% of our SKUs in the portfolio. And we have a plan to reduce that even further by another 20%. And again, why are we doing this? It simplifies our planning. It actually will lower our cost to serve in our plant network. And ultimately, it will improve our lead times and service to our customers. So not only are we creating productivity in our own operating system, we're actually going to improve our service to our customers by doing that as well. And we think that's going to deliver over 50 to 100 basis points of improvement. So over -- in closing, this business is well positioned with world-class technology today that's going to be foundation-ed further by our new connected offerings in connected warehouse, connected worker and robotic applications. And we're positioned in markets that have high growth rates backed by strong macro trends, and that will deliver high single-digit growth rates for this business. Second, we're going to improve our margins. We're going to be doing it by upgrading the value of our revenue by growing that service business I talked about with that $10 billion install base, driving pricing and value in the marketplace through our sellers to our customers and improving our operations. Ultimately, we think these activities will result in us delivering 18% to 20% operating margin in this business during a strategic planning period. I'm excited about the opportunity. I appreciate your time listening to me. And thank you very much.

Ladies and gentlemen, please welcome Anne Madden, Evan Van Hook, Gavin Towler and Sean Meakim for our first thematic panel discussion on sustainability.

All right. Great. Happy to get this panel started. As a reminder, we'll have time for your questions towards the end of the session. So Anne, I'd like to start with you. In your opening comments, you talked about sustainability as being core to Honeywell, but so is innovation. So can we talk about how those 2 are interwoven in terms of our strategy?

Yes. These are not siloed activities. Sustainability and innovation have been married together, woven together for a very long time across Honeywell's innovation history. They have to be together. It's really incredible to see how it works together within Honeywell. We mentioned earlier that we committed recently to establish our Scope 3 emissions. That will draw -- with SBTi, that will drive so much more innovation that is sustainability oriented. I love Vimal's presentation, super high excitement and energy around some of the cool technologies that we have today that are solving those problems, whether it be flow battery technology or renewable energy, plastics recycling. Those are so exciting. And of course, Solstice. The virtuous connection between sustainability and aviation that drives that Solstice product to help our customers reduce their own Scope 3 -- reduce their own emissions will help us reduce our Scope 3 emissions. And these are profound innovations. I mean when our -- we estimate that our customers' use of our Solstice product has already done the equivalent of avoiding the discharge of some 250 million metric tons of greenhouse gases into the environment. And so these are not trivial accomplishments. These are so exciting. But when you marry sustainability and innovation together, it really enables you to be a leader, and that's exactly what we intend to be in our strategy, is the leader in the energy transition. And so when we combine those 2 forces together, it creates a lot of opportunity for us.

That's great. So Evan, as our Chief Sustainability Officer, just maybe give us a little bit of background, walk us through the journey that Honeywell has been on from a sustainability perspective. And then more importantly, how does that influence your thinking about the path from here to carbon neutrality by 2035?

Sure. And it really has been a journey. And as Anne indicated, what's become increasingly clear is sort of the comprehensive nature of this approach. When you think about it, our sustainability story really started back in the 19th century with the origins of the company because it started with engineers focused on making things work better. And in the last couple of decades, it's become increasingly clear that making things work better also means addressing environmental and social outcomes. And so we started our formal sustainability program in 2004, but it really was a continuation of this history of innovation. In 2004, what we did was we really embedded sustainability into our core operating system. And what that allowed us to do was turn our entire workforce sort of loose on finding creative ways to reduce emissions or improve efficiency. We set a series of public greenhouse gas targets and we beat everyone. Now the result of that is we are more than 90% improved in our greenhouse gas intensity, we're more than 70% improved in our energy efficiency, and that has come along with saving about $100 million on an annualized basis. So I think it's fair to say that we're really happy and proud of that sort of history of the program. But I think we're probably even more excited about where we go from here. It started out with Darius last year, making the commitment to carbon-neutral facilities and operations by 2035, which is 15 years before the targets set out in The Paris Agreement. And we have a series of sort of like benchmarks along the way. We have a public commitment for 2024, and we recently set another public commitment with the Department of Energy for 2030. And by the way, all of these data are third-party verified and publicly disclosed. And so anybody in the world can track our progress along the way, which we think is very important. And then finally, as Anne and earlier Darius mentioned, we're sort of completing the picture by committing to set a science-based target that's aligned with The Paris Agreement and that extends to our third -- to our Scope 3 emissions, including with our products. And what that's going to allow us to do is use our operations as a laboratory to drive innovations and then flow those innovations out through the value chain to our customers.

That's great. So that's the way to set the table and I'll just maybe go a layer deeper. So Gavin, our Chief Technology Officer for PMT, in my experience talking with investors, there's a lot of concern around the longevity of the UOP business. As there's potential for demand pressure for fossil fuels, what does that mean for UOP? Can you maybe talk about how UOP is going to participate in the energy transition, enable that transition and the types of technologies that are going to underpin that momentum?

Yes. So the first thing to recognize is the energy industry is not going to go away, right? People still want all the benefits of living in the modern world. We want to have cars. We want to go on vacations and fly airplanes and have electricity and heating and so on. So we still need an energy industry, but that energy industry has to transform itself so that we don't damage the climate. And I think everybody in the industry recognizes that. In fact, as Vimal pointed out earlier, UOP has been working on this for a long time. I actually came to UOP 24 years ago to work on the hydrogen economy. So we were already thinking about hydrogen as a displacement fuel back then. So these things don't come out of nowhere. And UOP's customers are all thinking the same things. They're all also working out what's their pathway to improving their ESG footprint and to making their business more sustainable. So it's fantastic to see that things like hydrogen and renewable fuels are now gaining much more traction. Just 2 years ago, in 2019, UOP had 2 renewable fuels of units operating. We now have 6. As Vimal said, we've sold 26. 2 of those actually just announced this week. So the pace at which people are adopting green jet fuel, green diesel fuel is fantastic. Hydrogen is very similar. We're now working on 20 blue hydrogen projects around the world and just yesterday announced that we're also entering the green hydrogen space. So those things are really picking up. But UOP's customers are coming to us for more than just biofuels and hydrogen because they're all working on their Scope 1 and Scope 2 emissions, what can they do in terms of their efficiency, but also on the Scope 3. And Scope 3 is, as Anne mentioned, it's the emissions across the whole value chain. Well, if you're in the business of selling fuels, you're selling stuff that's getting burned, and that's a very high Scope 3 footprint. So UOP is increasingly working with customers who are building new refineries to figure out how to bring their Scope 3 down and with customers who have existing refineries. And new refineries are still being built around the world. The places where they're being built are Africa and the Middle East and the Far East. And if you're about to drop $10 billion on a refinery, you want an investment that's going to last a long time. So a big focus for UOP has been increasing the petrochemicals yield in refineries. If you look at the average across the whole industry, the average petrochemicals yield is about 10%. We've just signed a unit using some of our new and increased petrochemicals technologies with a 75% petrochemicals yield. And petrochemicals, that means durable products. That refineries, not only is it not got a great big Scope 3 impact, petrochemicals are also high margin. So it's going to be high margin. It's going to stay in operation for a long time. And it's going to have great profitability. So this is coming out in all of the conversations that UOP has with all our customers. We want to be part of their road map as they move forward with their transformation. But it is really important to understand the scale of this industry is huge. All of those renewable fuels units, when they're all started up, will be low single digits fraction of the total jet pool. And the total jet pool is only about 5% of the total hydrocarbon pool. So this is trillions of dollars of investment that have to happen over the next 20 to 30 years. And UOP is going to be -- UOP and STS, which came out of UOP, are going to be a big part of that.

So maybe just drilling a little more around the Ecofining technology. You talked about where there's demand, especially in the Eastern Hemisphere, around greenfield. What about all those brownfield assets? Can you talk about that process of helping existing customers make that migration and how those assets can get put to work even as we transition fuels?

Yes. In fact, actually, the biofuels is not an emerging market play, it's actually happening everywhere, and it's being driven by different things. In the European Union, it's legislation. They have to meet a minimum blend fraction of sustainable aviation fuel. In the U.S., it's incentives. But it really doesn't matter where it is in the world. Everyone is waking up to the fact that the way to make aviation sustainable is to switch to sustainable fuels. So we're seeing a lot of interest in it. The level of activity in greenfields is phenomenal. And we started this technology only about 10 years ago. And now it's just -- it's really taking off. But it's not -- the technology is not just for a sustainable aviation fuel. You can use it also making diesel. And we're increasingly seeing interest from downstream customers is bringing more biofuels into the refinery. Again, with the goal of bringing down the Scope 3 emissions because biofuels have got a lower CO2 footprint to begin with. So we're looking at adapting the technology to make green naphtha to go into petrochemicals, so you can make renewable petrochemicals, renewable polymers. And we're also looking at other ways that you can take biosourced materials that are maybe byproducts from the agricultural industry and turn those into petrochemicals as well. So we've got some exciting things going on in the research stage, not yet commercial, around [indiscernible] to polymers and things like that. So there's going to be a lot more activity in the downstream sector on sourcing biomass materials and bringing them into the value chain.

So we talked a lot about energy transition. It naturally gets a lot of the airtime, especially for PMT. But there are some other technologies within STS that are also sustainably linked. Can we just maybe talk through an example of that?

Yes, actually, Anne touched on some of it, and I know Ben is going to say some more this afternoon, but yes, sustainability is not just carbon footprint. It's not just decarbonization. Across the rest of Honeywell, of course, everyone else mentioned resilience and safety. But particularly in PMT, circularity needs to be part of our thinking. So we have to take more of a cradle-to-grave viewpoint of everything. And a great example of that is plastics. Plastics are phenomenally good for sustainability, right? The 2 biggest technologies that have improved food safety and food sustainability are refrigeration and plastics because they let food last for longer, they increase shelf life. And in a world with 7 billion people, we grow enough food to feed 10 billion, but 30% of it is still wasted, wasted due to food spoilage. And a lot of that actually happens in the places where there's the most food stress, in places like Africa because food is not refrigerated or it's not packaged. So having that packaging can really extend shelf life, it can really make food more sustainable. But what we don't want is the world piling up with plastic waste. So we have to be able to take those plastics when they've been used and make sure they don't find their way into a landfill or into the ocean or just get burned on a trash pile somewhere, but turn them back into the feedstock that can be made into new plastics again. And this is why we launched our upcycling technology. At the moment, only 9% of the plastics in the world are recycled back to any kind of use at all. And most of them go back to a use that's not as good as the original. You melt them down and make them into lawn furniture. Well, the world only needs so much lawn furniture, right? But we need a lot of food packaging. We need a lot of food packaging to make sure that food is safe the first time you open it, right? And water bottles and things like that. Water bottles are a great sustainability thing because they make safe drinking water available in countries where it otherwise wouldn't be. So we need to find a way to make those things back into feedstocks. And our upcycle technology can handle 90% of all the plastics. So that's why -- and Ben will talk more about this later this afternoon, but that's why we're really excited to be closing the loop there and working towards true circular economy.

And maybe I could just riff on that for a minute. It's worth repeating. You try really hard. I know all of you obsessively recycle. You're careful recyclers. You take everything that you use and you bring it to the curb and you're recycling everything. You should be shocked that only 9% of plastics get -- waste gets recycled. So our technology is going to be game changing to the world's ability to recycle those waste plastics and have a drop in use into the equipment.

That's really helpful. So let's now maybe pivot to the portfolio a little bit. So Anne has been a key figure in Honeywell's transformation and 100-plus acquisitions, 75 divestitures, so optimizing the portfolio over a couple of decades now. How does sustainability help shape our portfolio? And then how does that influence our M&A focus going forward?

Yes, thanks. Well, you heard us say, today, over 60% of our revenues are ESG-oriented solutions revenues. And so it's a big part of our portfolio today. And we intend to continue to invest there, whether it be on the organic side of growth and investment or the inorganic side of growth and investment. And so on the inorganic side of things, ESG is an important strategy. When we build pipeline today, when we develop our priorities for where we're going to go hunt for target companies that align with our strategies, well, ESG is a really, really important screen, an important strategy for us to go build pipeline in. So we look at it as a formal matter of asset attractiveness or whether or not we can find assets in those categories that will fill our technology and capability gaps and where we want to migrate the portfolio. But we also look at ESG through the lens of what will an acquisition do to us, do for us. And so throughout the life cycle of an M&A process, we're evaluating whether or not the asset makes our ESG profile more attractive or does it detract from Honeywell's ESG profile. And so we attack it through both dimensions. And if you look at some of the recent acquisitions that we've done, the Sparta Systems deal, very attractive from an ESG perspective. Sparta Systems, as you probably know, is a quality management system software solution that supports life sciences and other verticals, and it creates a system of record in an area that's important to compliance and safety and quality. Rebellion, as George mentioned, another great example. It's gas cloud detection. It's leak detection. It's making our -- it's making us a safer place. And it's really, really super cool technology. So we were attracted to that as an ESG-oriented acquisition. And then, of course, we have an active venture capital fund that we launched back in 2017, and we've done investing -- ESG-oriented investing out of our venture capital fund as well. And a couple of examples of that are older fuels investment was a venture style investment in SAF with United. We did an investment in a company called Nexii, which is low-carbon green construction materials. We've invested in electronic aircraft with Lilium and Vertical, and those are super cool. You heard Mike talk about how important Honeywell's technologies are to developing electric aircraft. And we also invested in a company called FarEye, which is a digital logistics platform that's now added CO2 tracking to their offering. So we try to think about ESG holistically. And indeed, when we do acquisitions and we think about that as an opportunity for growth, we actually aim for our acquisitions when you take the totality of factors to be net neutral to Honeywell.

That's awesome. So maybe I'll have Evan kick this off. I'd like to hear from all of you. So we made this commitment today that we are entering the process for a science-based target initiative around Scope 3 emissions. Just how do you think about challenges and opportunities as we go on that path? And again, I'd love to hear everyone chime in where appropriate.

Sure. Yes. It's -- I'm going to sound a little bit like a broken record here, but I think this is such an important point. There is a lot of discussion around the challenges of managing Scope 3 emissions. But if you are a company that innovates in this space, then Scope 3 is [indiscernible] an incredible catalyst. Because when you think about it, one of the ways that Honeywell is going to achieve its science-based target is by innovating with our products to reduce their environmental footprint. And Anne mentioned earlier, Solstice has helped our customers avoid 250 million metric tons of CO2e to the atmosphere. Well, those were our Scope 3 emissions. And so -- and we're going to do the same thing as we did with Solstice with the other technologies that Gavin has been talking about, including upcycle, SAF, et cetera. Those are all going to reduce the environmental impact of our products. Well, those same 250 million metric tons of our Scope 3 emissions are someone else's Scope 1 and 2 emissions. And that's kind of the thing that has clicked with this, with this value chain view of carbon emissions, that there's an alignment now across the value chain that I think wasn't really apparent before because we're all basically trying to do the same thing, which is reduce greenhouse gas emissions. So that's why I think it's an opportunity rather than a real challenge.

Yes, maybe I can chime in a little on that as well, Evan. And it does create a virtuous circle, right? Because now we're incentivized in coming up with better technologies that will consume less energy. The customers, at the same time, are incentivized in wanting to bring their Scope 1 and Scope 2 down. So we're aligning to around moving some of these technologies forward much faster. And that, I think, is a big factor in why we're seeing the pace of investment really picking up.

So now we're ready for questions from the audience.

Peter Arment from Baird. Maybe this is a question for Gavin. You mentioned the green fuel adoption. You're working on the technology for about a decade and you have seen some faster adoption recently, but you mentioned legislation is one way they're driving it, in other ways, incentives. Maybe what are you seeing that's working best? And when are we all going to be kind of being fueled by Honeywell's green aviation fuel?

It's a great question. I mean to say which works best between making it an absolute requirement and providing a financial incentive, it's really a social political decision, right? And every country is going to make its own decision depending on what works best in that environment. In the past, we've seen everyone's played this different ways. The Europeans used to incentivize diesel fuel versus gasoline financially. Now with aviation fuel, they've decided to just say, "Okay, it's a flat cap." It is important in the energy transformation to understand that we're not moving from fuel to things that are lower cost, right? Decarbonizing is not free. If it was free, we'd have done it 20 years ago. All of these things require some amount of financial pain on somebody. Someone's going to have to invest money. And the energy infrastructure is trillions of dollars. So it's really down to every government. And there are now only 2 countries in the world, I think, that have not signed The Paris Agreement. So basically, everybody signed up for this. Everybody signed up for increasing their ambition every 3 years. So every COP meeting, you're going to hear more people saying, "Well, we've lowered our target. We've increased our national determined contribution." They've all got to decide what they can sell internally to their population as the best way of doing that. But everyone is making the commitment to do it. So I wouldn't call one way or the other way better. Every country will chart its own path. But we're all on this path. We've realized we need to do this. We as a species.

Julian Mitchell of Barclays. Maybe 1 question for Anne. You talked about the portfolio management aspect of ESG as it relates to acquisitions. But I wondered maybe on the divestments front and the sort of existing portfolio management how ESG influences that. Defense, for example, is a sort of a mid-teens share of sales. There's a lot of ESG investors who struggle with when that gets above a single-digit share. So how do we think about that in some of the petrochemical exposures as well?

Yes. Thanks for that question. For those of you who know us, we are a super unemotional manager of our portfolio. We look at it every year very clinically, very unemotionally. We review it with our Board of Directors every year. And we have done a lot to prune elements of our portfolio over the last couple of decades. Sean mentioned 75 divestitures, that's probably over 80. We have not stood still on -- we both put in and we take away. And we've really reshaped the portfolio meaningfully over those couple of decades. There are likely still things in our portfolio that we need to look at. But as you might imagine, you can't wave a wand sometimes and just achieve an outcome. And so you have to be careful and prudent, and there are collateral consequences to actions that you take. And so we'll always be very, very prudent about that. But rest assured, we look at it very clinically.

It's Deane Dray with RBC. I'd like to go back to the plastics recycling technology. I know you're building a plant in Texas. You got a joint venture with Avangard. Is the technology fully proven at scale? And do you have plans for other plants? Is this a test site? It just -- it seems so promising. I'm wondering if you're moving fast enough.

Well, I -- if I can answer this one, I know Darius will say we're not moving fast enough. That one is a straight answer. The plants are, at the moment, being in detailed engineering. So they're not actually up and running at full commercial scale yet. But we've demonstrated this technology at the pilot plant scale. We've been running our pilot plant for, I want to say, 3 years now. So we've got a lot of results on lots of different kinds of plastics. We're very confident in the technology. Otherwise, we wouldn't be investing in it ourselves. And is it going to scale rapidly? The adoption cycle in the chemical industry, it's not like cell phones. It's not like there's an announcement, and then suddenly, everybody decides to go out and build one. There are -- it's a conservative industry because these are very large investments. But Ben is going to be up this afternoon. We're seeing a lot of interest and not just in regions like the U.S. and Western Europe, it's around the world. People want to solve this problem.

Just to add, yes, so we are moving a bit slower. The second point is [indiscernible] presence in Europe and having a presence in the U.S., the joint ventures that we announced, 1 in Europe, 1 in the U.S., [indiscernible]. And as Gavin talked about, having a pilot plan, we had hundreds of [indiscernible] potential customers in our pilot plan. So yes, it's got to be [ $1 million ] scale, but it has worked very, very well. And it was [indiscernible] our technology versus others. [indiscernible] can be less selected in terms of the plastics [indiscernible]. That's why people selected us as [ markers ] rather than others. That's really one of the [indiscernible].

And can I just add one more point on this? It's been a big week for news, right? There's a lot going on in the world at the moment. So maybe if you haven't had the chance to like scroll all the way down, but one of the things that maybe hasn't caught everybody's attention is the Nairobi Conference. So there's actually a UN environmental program conference going on this week that's agreed in principle to set a global treaty for eliminating plastic waste. And this is going to be on a par with the Paris Agreement and the Montreal protocol. So it's not going to be signed this week or anything. The signing will probably end up being 2023, '24. But the -- again, there is a general societal alignment that this is a problem we all need to solve. So we really see this one building momentum, too.

All right. Great. That was a really helpful conversation. We're about out of time. So we have about a 30-minute break. So check your e-mail, you hit the restroom. We have lunch available outside. We're starting back right at 12:30 with our next panel, which is going to be on the next frontier and future-proofing our business. Thanks, everyone. [Break]

[presentation] Ladies and gentlemen, please welcome Suresh Venkatarayalu, Ben Owens, Stephane Fymat, Tony Uttley; and Sean Meakim for our next frontier panel discussion.

All right. Welcome back, everyone. I hope you had a good lunch. Looking forward to this next series of panels. We're going to begin with the next frontier and future-proofing the business. So Suresh, let's start with you, maybe just as a table setter. Just help us understand what it means to be a controls in automation company when you think about the vast variety of end markets that we serve?

Sean, to read, I said it clearly. We are building Honeywell to be a future controls and automation company and which are mission-critical, safety critical for our customers. Just to unpack what's control system? What's control, what's controlled system? The way we define it is, anything that is an Internet of Things, things that you sense, measure, improve and control. That's pretty much what we do, which is our Six Sigma Foundation. We used to actually track, measure and improve one thing at a time. Many of you would have known the thermostat, which had a set point, then we started really measuring many things, which are federated, which are distributed, secured, and that's what we do for all our end markets, aerospace, buildings, plant and then all the warehouses of the future. As you really look at it, what do we do well? It's a controlled systems that gets embedded into those end-market applications. How do you really bring all these pieces together for our disparate different businesses all over the place. There are 3 different ways we do it. You talked about Forge. Forge is our platform to really plug our applications integrated. We are building more products on top of our installed base. Second, CTOs of all our businesses. We have a common road maps across the businesses, bringing in controls, road map, sensors, materials, and things that are catch across our businesses for consistency's sake. And then the last thing with our corporate R&D across company asset that we have called Honeywell Technology Solutions with more than 35,000 -- 35% of our engineering resources, they help in cross-pollinating those platforms and architecture and in tools. And that's the way we actually bring those pieces together, harmonizing across different businesses.

So now let's talk about innovation, how Honeywell and it's innovation. Maybe just need some metrics could be helpful, too. NPI, contributions, vitality metrics of NPI. When we think about R&D, how much are we allocating in the legacy products versus NPI Core versus BTIs, innovation driving as a percentage of revenue in recent years.

Sean, this morning, Darius really walked us through the metric, which is NPI vitality metric. 5 Years ago, we established a robust MOS, which is around measuring the 3-year vitality index. We started with 21 person 5 years ago. This year, we're going to be ending up close to 32%, and Darius talked about 33 year from now, which is almost 11% improvement in our innovation machine, churning the products and innovating to the market. Then we wait an improvisation, 2 years ago, we said, we need to release slice, what we call an NPI core, which is refreshing your current products with incremental innovation, we said, what's NPI new, which is new to market, new to segments and that would really fuel our organic growth. So we actually established the measurement system, which we started with 3% 5 years ago. We end up -- I think, we will be ending up at 8% this year. which is significant because it was 5% growth in our NPI new, which includes all the breakthroughs that we are talking about, that's going to be our lifeline for our new innovation machine for the company. In terms of investment, I think we have really ensured that has a higher returns in most of our innovation, but to give you a high level slice in our R&D spend, 60% to 65% goes into our NPI, but within that, we are investing probably in the range of 30% to 40% in our BTIs and NPI new, and that's how we're going to be seeing some of the new cutting-edge innovation in our business portfolio.

So Darius talks about the last 10 years have been about migrating from being an industrial company to industrial software company. Can you talk about what that means as the CTO. And then more importantly, what does that mean for the path ahead?

I've been with the company for 27 years, very, very proud about the legacy of Honeywell. The first 120 years, I would say, we've been a control systems company. We have some of the best and greatest innovation across our business portfolio from aerospace to PMT and building technology. The last 10 years, basically, we virtualized our control systems. That's what we did with our Forge as a foundation. We virtualize the control system. You'll hear a lot about connected cockpit, connected building and most of the connected portfolio. For the next 10 to 15 years, I believe it will all be autonomous intelligent control architecture. You will actually see some of the great demo later today, which is in the unmanned area, you will see autonomous plant, some of the great showcase that we have for you later today, but this evolution is extremely critical for us because fundamentally a control system company is going through this big pivot curve, and that's going to be really fueling our innovation machine.

That's great. And so now maybe let's pivot towards some disruptive technologies and do a little spotlight on a few of them. So Ben, we'll start with you. Let's just touch on briefly the Sustainable Technology Solutions business. What's that portfolio comprised of? And how is our legacy technology, coupled with new innovations creating this opportunity for a new business that we have?

Hopefully, by now, you've seen our passion for the space from our senior leadership down, and I'll add a little bit more color to that. So we have Net Zero energy storage and circularity solutions in the portfolio. In the Net Zero space, we talked a lot about renewal fuels. We're helping to decarbonize the transportation sector. We do this through our Ecofining technology, where we convert batch oils and greases to renewable diesel and sustainable aviation fuel, and we're working actively investing to expand those feedstocks. Also in the Net Zero portfolio is our hydrogen and carbon capture solutions. So these are cost-effective, commercially proven market-ready technologies and help reduce the emissions of those hard-to-abate industries, think heavy manufacturing, steel, cement power. In our energy storage portfolio, we couple our battery storage technology with renewable generation assets, I think wind, solar, to meet the growing demand for renewable power. And then lastly, in plastic circular you talked about up cycle. That's the critical missing link to complete the plastic circularity value chain. So our vision is to innovate and to commercialize the technologies that will be critical to the energy transformation. But what's most important is, this is built on a rich technology foundation that UOP has developed over decades, and we draw a little bit into that. So we talked about membranes. And then we'll talk a little bit about those. And you'll get -- have a chance to see some of our men bearing innovation this afternoon. But most people don't realize that one of the key enablers to hydrogen, carbon capture, flow battery and our just recent entry into the catalyst coated membrane space for green hydrogen is a memory, and we are fundamental here. We've been in this place over 4 decades. We have over 300 operating plants that have an installed capacity to separate 33 million metric tons per year of carbon dioxide from gas streams for downstream use or sequestration. So if there's one thing I can kind of leave you sums it, why are we so excited? Why are we so passionate about this space? This portfolio has targeted solutions for industries that generate 2/3 of the world's greenhouse gas emissions.

And then a follow-up on that. This is a natural question. Think about Honeywell's positioning for STS as a portfolio, how big is the market and why are we going to win?

So first of all, these are fastly growing quickly emerging spaces that are rapidly forming. Moving next, let's call it, 5 to 7 years. We see this going into a $12 billion space. Now that could accelerate. That's all dependent on customer adoption, public policy and regulation. But we're confident of $12 billion. As the point, why we'll win? It really goes with technology foundations enabling our commercial acceleration. And let me explain that for a moment. So I talked about membranes. Another pack is hydrogen purification. We've been in the business for 5 decades. We have over 1,000 installed hydrogen purification units around the world. So great, you have an installed base. So what's that do? So we were able to use that fundamental understanding to win Wabash Valley. So the world -- when it comes online the way the U.S. largest sequestration project, we were able to develop a system that reduces carbon dioxide in their hydrogen production by 95% compared to a great hydrogen and do it in a cost competitive meaning. Second is plastic circularity. So when you all recycle and hope you will recycle, recycling is inherently variable. So it's not like oil. What you throw away today differs by the day of the week, what you throw away recycle on the weekend, not through away recycle. This is seasonality. So our core technology is to manage that variation in the contaminant management to produce a reliable high-quality feedstock they go back in the steam cracker and you be used to produce new plastics and thus kind of closing the value chain. So how do we develop this? This fundamental technology came out of 100 years of experience in refining in petrochemical patios. So it's that technology foundation, enabling the commercial acceleration through the presence with Honeywell with its global reach in its customer relationships, that puts that technology foundation enables us to accelerate. So I believe we're well positioned to capitalize on that win in this market.

Thanks, Ben. That's really great. Now Stephane, let's talk about the future of mobility and aviation. Let's talk about disruptive innovation and transportation. There's a lot of debate among investors around if and how this market is going to evolve. What's our view of it?

So will we talk about urban air mobility, advanced aerial mobility, cargo drones, small package delivery drones, all of this is in response to 2 big mega trends. The first one is increasing traffic congestion on our roads. So people in any major metropolis will spend up to 200 hours a year or more on the road getting around. The second big mega trend is e-commerce, online ordering and shopping. And as that continues to go up every single year, we see over 726 billion parcels being delivered every single year by the year 2030. And that doesn't include things like Uber Eats. What that means on a practical basis is more trucks and more delivery vans on the road. So collectively, this motivates us to find new forms of mobility solutions, whether it's line scooters, autonomous cars or new kind of aircraft, aircraft that are all electric that can take off and land vertically and fly like an airplane. And so this really gives us our vision where tomorrow people can go 100-mile trip one way in 45 minutes or less. Imagine, if you're from New York City, imagine Manhattan to the Hamptons, 45 minutes on a Friday afternoon. Imagine same-day package delivery anywhere in the populated world, not just in the major cities where Amazon delivers today. So in order to make this vision come true, we are investing in 2 areas: autonomy and electrification. Now autonomy here simply means that there is enough automation on the aircraft that you can have pilots on the ground, supervising these aircraft that are flying rather than having a pilot in the cockpit flying the aircraft themselves. And so this is important. This allows this kind of aircraft to scale much more broadly, scale up much more quickly, and it fundamentally changes the unit economics of these aircraft, improving them by 25% to 400%. Electrification is the next thing, electrically proposed aircraft. What this means is our aircraft that are as quiet as a Tesla that can take off and land in your residential neighborhood where you need them the most. It means that they can be recharged anywhere, not just at an airport. And lastly, and equally importantly, sustainable. And so some companies might be sort of sitting on the sidelines, opining as to whether or not they think that the space is going to be financially attractive to them. We think it is an opportunity for radical growth for the next 7 to 10 years. We've already won about $3.6 billion worth of programs already. I kind of feel that validates our thesis.

And so now the natural question about Honeywell's positioning. How big is the market for Honeywell, and why are we going to win?

So the overall market, we see as growing to about $120 billion per year by 2030. Of that, the portion that is addressable by Honeywell is about $30 billion per year. So we think it's a big opportunity. And why we think we're well positioned is really 3 things. This segment, urban air mobility, advanced air mobility, cargo drones, it's got a lot of commonalities with the rest of aerospace, but it's got its own unique needs. Things like weight is a premium, current draws a premium. And so uniquely targeting those needs and addressing those needs is very important. That's the first thing. And we're doing that. Second thing is providing end-to-end systems not just a point product here or a point product here. People are designed as brand-new vehicles, and that's a hardy hard enough. And so when they can rely on a company like Honeywell, to provide complete systems for electronics, for propulsion, for mechanical systems, for connectivity, all of that makes their job a whole lot easier. Thirdly, integration and certification. Somebody has to bring all this together and that's something we've been doing for a long time. And then you have to get it certified with the FAA with EASA. That's not easy stuff. It's stuff we've been doing for years, and it's a capability we bring to everybody that we work with.

That's great. Now Tony, let's talk about quantum computing. So for this audience, I suspect that most are not that familiar ultimately what it is that we're talking about. So let's maybe just set the table, let's talk about what quantum computing is and also why Honeywell has a lot of the core technologies that underpin we call to be a winning business in the quantum computing space?

Sure. So I'll keep it away from the PhD physics in the room here. I think the biggest misconception is that quantum computers are just a faster classical computer. And it's just fundamentally not the case. It's more like thinking about cars and airplanes. They can both get you from point A to point B, but they do it very differently. Classical computers, when they compute, they compute sequentially. They do it very fast, but they compute sequentially, whereas quantum computers can compute all the possible alternatives simultaneously. And that matters when you're thinking about a quadrillion different alternatives that could all be contemplated simultaneously to give you the answer that they want, that matters most to your particular business. Why Honeywell one is fun, because it's -- to some extent, these technologies that exist in Honeywell, it's like a toy store that you walk into, and if you picked all of the cool ones and try to put it together, what could you build? It turns out quantum computer. Most people think about computers with their laptop or their phone. Quantum computers do not work that way. It requires cryogenics that came out of the aerospace business. It requires ultra-high vacuum systems that came out of PMT. It requires RF and magnetic field controls that also come out of the aerospace business and part of the satellite business. These were technologies that already existed for decades, had been perfected. We had to put it together to develop this incredible technology.

And now let's talk about the merger with Cambridge Quantum, a relationship that began out of our BC fund originally. This now puts hardware and software together for a full stack offering. Why is this combination going to win the market?

Sure. I think it starts with most customers want a solution. It's not that people want to go buy 15 minutes of high-performance compute and they want a solution to their problem. And what this combination has done is bring together. If you think about what was the most valuable pieces of classical computing for the last 50 years, it was some of the hardware. It was operating system. Think about the companies that have owned the operating system space. It was big software applications and high-value spots. It was cybersecurity. Continuum has brought all of that together, right now in the quantum computing space to deliver these solutions today for customers in areas like financial services, like pharmaceuticals, like oil and gas, where the problems that they're thinking about right now are problems that are fundamental to what they do, and the change is going to be profound.

And so let's drill into applications in real markets. We have the recent launch of Quantum Origins so our cybersecurity product. Maybe walk us through that as why this is different than what classical computers can do? And then just help investors bridge the gap from what's tens of millions of dollars of business today to $2 billion that we aspire to by '26?

So this will be a stretch, but imagine you work for a financial services company and you care about your data, you care about that a lot. Do you want to protect it. In today's world, the cyber attacks that we're seeing are growing in complexity, they're growing in terms of the frequency, they're being done by nation state-sponsored actors. These are hugely hard problems. And cybersecurity, while it has many elements to it, and I always will, has a foundational core and that's encryption. And the way encryption keys are done today are generated today is while it's very kind of assured, it's got a tried and true practice, it's deterministic. What does that mean? That means that if you collected enough data you could determine what was that deterministic method of how that encryption key was made and predict what's next. Our quantum computers today can harness the properties of quantum mechanics, which is incredible to provably generate nondeterministic encryption keys, completely unpredictable. This will be the way all encryption keys are generated in the future, absolutely will be. The nondeterministic and provably non-deterministic. That's an existing market. It's a giant market. It's a growing market, and it's one that we have a product already available today. In fact, today, we just signed a deal with an oil and gas super major that is putting this into their business right now. That is just the start. A lot of the other parts of this entire market are going to grow out of things like using cloud computers to help generate the new molecules that are going into pharmaceuticals that are going into new materials, helping financial services companies, do new trading strategies or do fraud detection. These are profound gigantic opportunities that cloud computing will help roll into.

It's really compelling. All right. So we're going to open up for investor questions. But in the meantime, let's do a quick personal -- just as a segue, let personal anecdote. Just down the line, 1 or 2 sentences, what's it like being an entrepreneur inside of a large, but innovative company like Honeywell. Antonio Sorio come this way.

I got to say, in my career to be able to have started from truly it was a light piece of paper. A couple of scientists said, "Hey, do you know what we could build if we brought all this together," be able to think of it from a concept to a technology development to an entire business in a completely new market space. That kind of entrepreneurship, I can't think of another place, another company where that could have happened.

And for me and for our team by extension, I would say that we are living in some of the most exciting times of aerospace, I mean, generational change and innovation in the space. So it's like the best jobs in the world. And to be able to do it in a company that has the wherewithal to actually see it through and make it happen, that's very, very exciting.

Yes, I guess I'd echo Stephane. I mean, where else in there outside Honeywell, do you have the opportunity to shape the future of the energy transformation by acting like a start-up speed comparing that with a technology foundation you get with Honeywell. So the passion and the excitement you're seeing.

And Suresh, for you helping to incubate all these businesses inside of Honeywell?

What's exciting is we just showcased 3 of our breakthroughs, I have an opportunity to see close to 30 to 33 at any point in time, we are incubating across at various level of maturity. I think that is more exciting. And I think you will be seeing more right here in the future.

I guess it's a question. And just talking about your business. I was reading Peter Thiel's book. And the whole idea here was saying how the terminal value was not in year 5 was not in year 10, the further out you get sort of the more value you create, right, just because it's a growth business. So at the same time, Honeywell, right, the core at Honeywell is stellar returns on invested capital. I guess, Darius has demonstrated that your internal growth initiatives have by far the best internal returns on capital. So how do you get capital from Honeywell? How does Honeywell allocate capital to you? How do you change the parameters inside Honeywell that has super disciplined approach to capital allocation to feed growth businesses like this and also how to make decisions not to feed growth businesses because I would imagine there are businesses that didn't make it. So what separates the businesses that have made it and have not made it?

We're going to start . I think it's a very disciplined milestone-based approach. So Darius just didn't give me a sum of money. So I had to meet with them on a quarterly basis. And we had certain objective milestones that we had to meet to continue to get funded. And you're right, not all of our growth programs made it. So I'm talking about the ones that did, but there were a few that we decided, well, we they can't worry committed. We're not going to different in that space. So you're right, we stopped investing in those. So I think it really goes back to where you're early. It's a milestone-based approach.

But maybe I can add for 5 years in a row, we have been running our zero-based budgeting process a lot more critically across the businesses. which is all about loading all our programs and projects every single year looking at ROI, either IRR, NPV, and not just that, we are measuring almost on a monthly basis right now. Commercially, after we launched the product, how is the product performing and feel. And if you need to really get back and starting to say pivot, still or continue, I think that machine is getting better and better. I think from that angle, one of the reasons that you see from 21-person vitality going up to 30%. We would actually say that the investment profile would sticks right there, but the output is getting better and better year-on-year. So that is getting a lot more better.

And maybe just to add something to that. And you're right. I mean we do have a very disciplined approach and -- but you do have to feed businesses like this because otherwise, you're never really going to be an innovator. You're not going to take any chances and not provide capital and funding to business like this, you can't be who -- you can't be a company that's over 100 years old like we are. It just won't happen. But you have to be disciplined and rigorous about it. So I'm kind of all to these 3 guys. I'm a VC, and VCs don't just hand out money for free. You actually have to hit certain thresholds, whether it's technology advancement, financial gains, and I meet with each of these gentlemen at least quarterly and some of them more frequently to see how we're doing. And that's sort of the approach. And some things we just have to say they're just not working and we're going to have to terminate and do something that's different. And it's probably the hardest part because nobody wants to do that in a minute. But VCs stop funding a lot of different things, and we do that, too. So these 3 examples that you have on stage are some of our success stories. But we've had some failures too, which is totally okay.

Tony, when you look at kind of the landscape, the competitive landscape in quantum, IBM has some stuff and a public company out there that make some noise about it. What differentiates your technology other than now that you're kind of combined with this software organization like your core kind of the Honeywell technology versus those guys when we read articles like how should we differentiate and think you guys are -- how you guys stack up there?

Sure. Yes. I think one of the biggest pieces of Continuum is that we strategically became a center of gravity for the entire industry. Like I said, we have the hardware element to it. We have operating system. We have application layers all the way up through to the customer use cases. And so what we've seen is, as we've been talking to investors is that it is like making a bet on all of quantum as opposed to on a specific technology. In fact, we are intentionally platform inclusive. That means Continuum is actually one of the biggest users of IBM's cloud computers on the planet intentionally because we know we are experts in this space. We know when we develop these algorithms is this technology. That particular use case is going to work better on this type of a hardware or on this type of hardware. And we're just getting into that era now where you can think about bifurcating an entire problem set and say this piece of it is going to be run on our own H-Series Quantum computer. This piece of the same algorithm is going to get run on IBMs and the rest gets run on GPUs. It's an entire industry that's going to move towards more of a heterogeneous type of a compute already, and we are perfectly positioned to go do that.

And then, I guess, maybe this a question for Darius. But if the day does come when you monetize this to a degree, why are they better off being public outside of Honeywell. If it's such a great technology, why not keep this value in-house for you guys?

Well, I think the timing on that is in question, but at some point, this business today is trading at our multiple, right? I mean, so we are trapping some value in it today. And I think at some point, we want to continue to monetize that timing as to when we would sort of liberate it or partially liberate it is unknown, but it does gain you access to capital, a whole different value point. And long term, I'm not sure that sort of trapping this we've been Honeywell is the right strategy, both for the team, the business, the board, et cetera. So it's kind of how we think about it. And there's been a history of a lot of technologies that have been spun out of Honeywell as well as other technology businesses. And I think that this is going to be yet another example. And I think, frankly, the leading quantum platform in the world, which I think deserves to sort of gain visibility to the broader investor spectrum, not just within honeywell.

I know we have more questions, and there's more to unpack in this discussion, and they'll wait for the cocktail hour to continue some of those. But thank you, gene. It's a really good discussion. So from here -- we're going to move on to the software and Connected Solutions panel.

Ladies and gentlemen, please welcome Que Dallara, Mike Spencer, Doug Wright and John Waldron for our software panel discussion. All right.

Thank you all. So we're kicking off the software panel. Que, let's start with you. So in your prepared comments, you talked about the progress that HCE has made since 2019, building out multiple cloud-native Forge applications to help customers solve these challenges. That's been a big undertaking and so you kind of set this foundation. As we think about where HCE stands today, what are the types of solutions you're providing to customers today?

Well, while we've done lots of different apps and code base, 1 SaaS infrastructure. And the really exciting use case we're going after first is really, if you're running a factory, I'm going to oversimplify a little bit, but your primary goal is how do I hit my production targets, while keeping things within safety parameters, making sure the production is reliable and sustainable. So that's really the problem you're trying to solve. And we have so many -- so you're in that situation, you've got lots of systems you've got to deal with. Honeywell Forge is really stitching all of that together and helping our customers make sense of it. It's -- think of it like an OT system of record or a CRM of operations. That's the big bulls eye opportunity we're going after first. And that applies not just in the building space, but also in the warehouse, in the factory in aerospace.

Great. And so now let's bring in the other side, the perspective within the Honeywell organization. So Doug and John, where are your customers in terms of their migration of software journey? And how is HCE helping you in those businesses?

Sure. Thanks, Sean. So our customers basically trust us to bring them a safe, productive, energy-efficient environment and more recently, a lot more focus on sustainability. And the way that we do that is we need to control lots of disparate systems with lots of different data sources, and we need to provide them with insights and digital service capabilities to help them meet those objectives. And a key -- really a key foundation of that is our ability to deploy software solutions in collaboration with our HCE brothers and sisters so to basically provide that outcome. And I believe very strongly that as sustainability becomes a bigger challenge. The system is getting more complex, and it's going to require even more capabilities around software for the future.

Yes. I'd say that in the SPS world, our customers have moved beyond looking for point solutions and cloud services. They really are looking for integrated offerings that deliver the visibility that Que is talking about from the lowest levels of the organization, at the operator and at the supervisory level, all up through administrative level and then executive levels. So that they have a complete command and control of that day's plan and then how the operation performs against that plan so that they can then feed that back and learn from it and improve their operations. They're all under the same stresses and pressures that we are, right, grow, deliver a better experience and do both of those at lower cost. And when we partner with our friends at HCE on the Connected warehouse, for example, that's exactly what we're delivering. We're delivering instrumentation, and we're delivering visibility on the machines, and then how they're performing against the plan, and how -- and then when it gets fun is when we bring the view of the people into that mix, how are the people behaving and performing in light of all of the machinery and automation and technology that our customers put to work.

So that's a really good segue to maybe put a spotlight inside of the Honeywell innovation machine in a way that I don't think is that well known by investors. So we have something called Forge Labs. I don't think that's really all that well known to this group here. So Que, we'll start with you, but I'd love to just kind of hear from the group what's the premise of Forge Labs? And then how does this iterative innovation process help drive value for HCE, but also for the business units?

Yes. Darius gave us 2 goals when we formed HCE. One was to build a stand-alone software business, which we're doing. But we're doing it in a very scalable way. And I think it's what I mentioned this morning is we're really -- we're not taking shortcuts but just containerizing old software. It really is a ground build coordinative application. So we have that. And so just to illustrate an example, we built that in the connected building space, primarily targeting a maintainer of hundreds of buildings. Doug sees an opportunity during COVID of healthy buildings. He could bring in his indoor air quality, filtration solutions to that. He can take out what we built at the core and extend that into a use case around healthy buildings. So not about maintenance but healthy buildings. So if you're logging in as someone that's really responsible for delivering that solution, you get an application, again, single SaaS infrastructure. That's the power of that. We formed this team Forged Labs because we saw how well it was doing. And that team helps work very closely with our [indiscernible] and SBGs. We have combined road maps. We ideated around joint value propositions and then we drive it through our release management process with clear milestones and release funding as we go along. So that's an example.

Yes. I think Forge Labs has been a great capability. It really differentiates us versus the people that we compete with. I think I look at it like this. A lot of times, we look at -- in the industrial world, we look at sort of software being applied off of a hardware foundation, and we say we're going to control our equipment better and have a better single pane of glass or something like that. But really Forge Labs, a lot is really intended that the software is actually the product. And it's not an add-on. It's a part of the foundation of what we do. And I think it's probably something we need to talk more about because as we are -- Que used the example of healthy buildings, I'll add on to that. One of the challenges that we face when we deployed healthy building technology is that when you put more filtration and more fresh air into a building, you have to spend more energy. So now schools and buildings around the world, which have added a lot of filtration to respond to air quality needs now have an energy problem. Some cases seeing 40%, 50%, 60% increases in their power builds. So we've actually worked with Forge Labs, to develop a new technology, which you're going to see a little bit later today, where we've actually been able to optimize that so that we don't over cool areas that are unoccupied, and we can optimize the more complex system that we're having to manage. So it's really a fundamental part of the value that we're bringing to our customers.

0I would add just a little bit to maybe from an investor's perspective, how might you think about this? Because I think one of the things Que made very clear in her presentation this morning is the growth and the accretion of the margin rate within HCE proper. Labs is really a force multiplier. If I think about the other $35 billion, and how do we get to take advantage of all the fantastic capability, technology and intelligence that exists in HCE. Well, our teams are collaborating on these joint road maps. And so when we want to go create a new offering on a connected solution. We partner with the HCE team to figure out how best to do that to solve the customer's problem, even though it might not be within the HCE proper, might technically live inside the other SBGs. And I think it's this collaborative environment that is really growing nicely across the enterprise that ultimately is reinventing how we create products.

I think there's a -- there's one more -- pile on, but there's one more very important aspect in double down on what John is saying. And that is the -- our ability to expand the use of our platform allows us to consume more data which feeds our Forge platform engine, which obviously allows us to get smarter. So in the end, not only is Honeywell benefiting, but our platform is benefiting and thus, our customers are benefiting because we're putting a more intelligent platform out there.

Really helpful. Mike, let's stick with you for a second. So from the HCE financial side, let's talk about what's the size of our stand-alone software business today? How fast is it growing? And then let's talk about investment priorities. So the prior couple of years have been about building out this foundation of Forge. So now that we're now going to layer on top of that. What does the investment profile look like from there?

Yes. So Que had on her slide earlier, but our business is roughly $1.1 billion, growing double digits and almost just important in the recurring of it, which SaaS is a growing component of is we grew over 30% last year. So we've been very pleased with our momentum, but obviously, still lots to go. The -- from a transition standpoint, one of the dynamics that we're watching very closely in our business is that in the industrial space, the migration to truly using cloud across all the forms is still, I would say, in the early innings to use the baseball analogy. And so when we look at the mix of our business, we do expect on-premise-based software and usage still to continue for quite some time. But as the technology and the sophistication matures within our SaaS portfolio, we do expect that transition to start to take hold in a much more material way. And obviously, developing a much more sturdy recurring nature from a SaaS standpoint it's super important to continuing that growth I mentioned earlier. And then lastly, from an investment standpoint, there's a couple of big areas that we're focused on to your call out where we've been hyper-focused on continue to develop our core Forge platform, which obviously is the foundation for all of our SaaS applications. We're still investing in that, but now we're moving, I would say, to the next phase of the investment, and that is enhancing the AI and machine learning side of it, drawing the connective tissue between the end-user applications and the platform itself and then developing the science around it. So think about the data science of understanding the usage and understanding the data that underpins the platform and then how we utilize that to benefit our customers. So that thrust is still a major component. And then the other big area from an investment standpoint is really to build out our SaaS portfolio. We've got a couple of core offerings, but we're looking now across all the verticals that Que talked about earlier today, to really build a value prop that customers find value in delivers TCO, as we discussed earlier as well as helps make their operations more efficient. So we think it's a win-win for us to continue the growth as well as deliver value to our customers.

And Sean, just to add, the majority of our business today is recurring content. That growth -- the growth rate of the recurring content is growing faster than overall growth. And the SaaS component of the recurring content is even faster than that. And that's accelerating. That's what gets us very excited because over time, more and more of the business is going to be recurring.

So can we just add on 1 more piece, Que can you just help us connect the benefit of the vast installed base of Honeywell has and how that ultimately creates a really big sandbox for HCE?

Well, it's 2 things. When you're trying to create something new, it's much easier to go customers you already have. You don't have to deal with being on the approved vendor list. They know who you are. They're more willing to experiment with you. And so we have a very tight relationship with our SPG colleagues on 2 fronts. One is getting access to customers, and we're trying to be very focused on the installed base that Honeywell has a such a large market. all the digital transformation of operations is still in early days. So we've got a lot of penetration to go. And on the second front, it's this joint ideation that we go through. And we have a pretty rigorous process during the year when we evaluate ideas. And we talked about -- you see some demos today, but trust me, the funnel coming through that is big. And it helps to have colleagues with deep demand experience in a number of areas that generate those ideas.

I would add to -- Sean, one thing what you say because it ties back to a question you asked in the earlier panel around entrepreneurship. And I've only been with Honeywell a year, but one of my biggest observations and what Que is talking about is that the credibility, the instant credibility that comes for us being a startup, a relatively large start, but to start up within broader Honeywell, the doors get opened much faster with new customers that are looking at our technology than they would have otherwise, which is a huge benefit for us.

So actually, it's a nice transition. Maybe talk back to Doug's business for a minute. Let's talk about the success you're having with Forge in terms of your vertical specific health and sustainability offerings. So we talked about digitizing fire safety through software. What other examples can you offer us around indoor air quality where are some of the areas we could pinpoint where HCE is really delivering value for your business?

I'll talk about one that's kind of going on today and one that's sort of in our future road map. First, we mentioned this dilemma that people are facing around air quality and energy, so we call that multimodal optimization. And this is really truly differentiated. This is not sort of a deterministic, if the CO2 level goes up, you bring in more fresh air. It's not that sort of traditional control capability. It's based on AI capabilities. And that's something that we developed in partnership with HCE. Then the other part of the -- kind of the future area, and you're going to see that later on today is that sustainability is not just a value for our customers. It's actually becoming a compliance requirement. And we see a big opportunity to create a single -- a record of where the carbon is in the building, being able to certify that because investors, the hedge funds, public company investors, folks like you are being demanding of people like of corporations to be -- have ESG capabilities and more and more auditors are going to ask us to prove that. So we have a real opportunity to leverage this kind of SaaS-based software capability across the building bringing our domain knowledge to be able to provide that certification, if you will. That's something that's going to be coming in the future.

And John, we're going to see the connected warehouse and the technology demonstration later today. So we see some of that in action. But from your seat, having run the SPS business, can you help us just connect for the investor, the value that connected warehouse brings within the broader SPS portfolio?

So George talked about the installed base. It's become very, very large. And if you think about a modern fulfillment to replenishment center, it's millions of square feet. And in a peak period, those assets deliver million units a day, either to the consumer or to the store that they're replenishing. So every hour or minute of downtime is extremely valuable. And historically, 98% uptime is pretty typical, but it's the 2% of downtime that happens when you can least afford it. It happens right before Thanksgiving, here in the United States or it happens right before a holiday. And our customers are asking us to come up with solutions that help them minimize the downtime. So they can maximize throughput. And then they talk about, well, I can't get people to come to work. So how do I think about replacing those workers or augmenting those workers or making them more productive, so that not only am I up more, but my throughput is even greater and I'm less intolerant to the shortages that I might experience in those periods. And these are live conversations with the hundreds of customers that are in that installed base. And it's been exciting because they co-innovate. And I think one of the things that Que is talking about, which is this access to customers thing isn't just door knocking. It's collaborative co-development, and it is really one of the keys to innovating in a large company because what small companies do is they're terrific at pivoting. What they're not so great at doing is getting in deeply embedded with large customers with many, many decades of domain experience. Well, that's what we're able to do when we talk about these solutions, and we have to rapidly innovate with our customers. So it's a very exciting opportunity and our customers are excited about it.

So we spent most of our time talking about organic opportunities and developments inside of Honeywell. Can we talk about Sparta for a bit? So an acquisition that's come in for about a year now. Let's talk about maybe just how that integration has gone relative to plan, but then also, what is this signal about our opportunity set in life sciences, and how we can leverage our learnings from this acquisition?

Yes. We're really pleased with Sparta acquisition. It's been a year. Darius said, we're going to be accretive this year after 1 year. We beat every internal metric on this acquisition. Just to give you a few data points, overall growth, 25% annual recurring revenue of our backlog, 30% and our SaaS recurring business is over 50% growth. So all of this is fueled by good geographical expansion we did outside the United States, especially Asia Pacific. That was a big part of the synergy model we had with our presence outside the U.S., e-products and also expansion into strategic accounts, which being a smaller company, Sparta had at least less access to. But what I'm really excited about when it comes to Sparta is the innovation fund in the future. I mean we are really the first to bring AI and IoT solutions to quality. We can provide predictive analytics and proactive quality and patient safety solutions that don't exist. We're the only provider of supplier quality where pharma and med device companies can collaborate with their supplies to a secure product on areas like collaborating on areas like recall reduction, for example. And we're about to launch the first integrated solution between quality management and our MAS and the control systems automation equipment that in Vimal's group. And it's going to allow the first AI-enabled batteries. So if you're in the biologics field, you've got standard vaccines worth $50,000. And if you don't know what's going on in your bioreactor, that can be extremely costly. So -- and then beyond that, we are bringing more and more suppliers in the value chain for pharmaceutical companies and med device. The more cyber incidents you see, we're bringing our OT cybersecurity capability in together in quality because you can think about the cascading effect of cyber incidents as a quality event, and that becomes material to how the life science industry thinks about quality in their supply chain. So a lot of very exciting innovations coming even after 1 year under Honeywell ownership.

Very helpful. Mike, the investors always want to bring these back to the numbers. So Darius laid out the updated growth algorithm. Let's talk about from a top line perspective, what can HCE be on a long-term basis if we execute on both the organic, inorganic, and then from a margin perspective, how is HCE helping us in terms of that 40 to 60 basis points of margin expansion we're targeting?

You bet. We -- from an aspirational standpoint, we're looking to get to somewhere around 10% of overall Honeywell sales mix over the next several years. We think we've got the right pieces in place, and now it's on us to accelerate that growth and really deliver to the customers. And we do think that we're in a position where -- if the business delivers and solves the problems for the customers like we think we can, and we know we can, we do think that it will become a rapid adoption within the customer base, which will feed that ambition. On the margin side of things, Que mentioned the growth rates around recurring and more importantly on the SaaS side of things. We're coming from a place where the business has a mix of both services and software, and it's been mainly on-premise software in the past. But the on-premise software, obviously, is very high margin, which is accretive to overall high well. And SaaS, because most of the products that we are innovating on today are born in the cloud SaaS. And so margins for those who know the space are born in the cloud SaaS abilities are very high as well. And so we do feel like we've got the right transition. Even if some of that on-premise revenue starts to move to the cloud, the mix shift of overall software continue to increase for our business and the recurring nature of it, it's really going to drive margins higher. We can obviously see the bottom line.

That's great. So we're going to open up to the audience for questions. But while we segue that and find some folks, can we just -- maybe just give us a couple of proof points next 6 to 18 months, what are some of the proof points that investors should be thinking about that can point to more realization of a lot of the efforts that are underway.

Sure. I mean, look, at the end of the day, we look at annual recurring revenue. It's a very -- not just what it is, but it's also the growth rate. We want to see a bigger mix in our business of annual recurring. The momentum is there. We want to see that in customer deployments, customer usage of the product. That drives lower churn. Our churn today is extremely low. So we help -- we expect to keep that. We also want to see customers start to push us also. And that's what we're seeing more demand, more content, not only do we have we captured the customer but we're landing and expanding. That's going to fuel the growth as well.

Yes, for us, I would think it would be tied to our new sustainability business, which we expect to grow at high double-digit growth over the next several years. And also our digital services business, which is quite material to us today, it's also growing at high double digits. So those are the 2 areas that the software content is the most critical.

And I think just like we talked about these BTI graduates that have turned into big businesses for Honeywell, I think that as an investor, you should be looking for us to have Forge lab graduates that turn into really exciting offerings that continue to accelerate growth on our SPG businesses.

Joe Ritchie from Goldman Sachs. So Mike, I want to touch on that comment you made about it potentially being a 10% of Honeywell's portfolio aspirationally, so call it, I don't know, $4 billion at some point. I'm trying to understand maybe the accelerators a little bit more. So I talk to a lot of companies in the space, and it still seems like we're early innings in terms of a lot of products being connected. I'm just curious like -- when you think about that aspirational target, where are you along the curve in trying to accelerate connectivity and getting the data -- and then also, how do you think about that target inorganically versus organically? Do you need to do acquisitions in order to achieve that aspirational target?

Yes. Let me start with the second part and then we can go back to the first part. I wouldn't provide an aspirational target that was contingent on inorganic. We will look at inorganic as being a strong contributor if and when that happens. And of course, we're always looking and Darius can attest that, but we're not -- it's not something that we would necessarily bank on, if you will, in that regard. On the curve comment, I mean, obviously, we haven't disclosed exactly outside of the revenue being at $1.1 billion. From an adoption standpoint, is more, I think, the core of your question, within the customer base. And you are right to say and I even said it earlier that we're in early innings. What I would say is that the hunger is there from the customers. And so we're feeding into that. The customer dialogue these days is not if we're going to move to the cloud, but we want to move, and now we're just trying to figure out what that path looks like. Now I would say there are some regional dynamics to that, which will dictate a little bit the time line. I'll give you the extreme where in the U.S., I would say that the industrial mindset is much more forward leaning. They're really starting to think about the deployments there. And we've got a couple of -- it's been talked about early adopters that are really excited about some of our products that are coming out. But in areas like the Middle East, as you guys may or may not know, public cloud adoption in general is still very nascent. And so as that matures, which we expect to have happened because you're starting to see that within the public cloud market, that will actually pull end-user applications like what we're providing as well. And so it will -- that's a long-winded maybe way of saying that it's going to be more gradual, but we do expect it to accelerate over the next several years. But getting it moving, I would say, getting the snowball rolling downhill is the zone we're in right now on trying to build that momentum in the customer base.

Nicole DeBlase from Deutsche Bank. My question is around the indoor air quality opportunities. So I think that there are a lot of companies out there, including the big HVAC OEMs that are all trying to get a piece of this opportunity. Do you think it's at all a disadvantage that you don't provide the underlying HVAC equipment? And I guess, from your perspective, is Honeywell getting its fair share of the IAQ opportunity?

The answer to the first question is no. The answer to the second question is yes. The -- I actually think it's an advantage not to be an HVAC player because when we walk in and talk to a school administrator or a big corporate, we want to be a trusted adviser to them. We're sort of in a unique position because we are their adviser for their fire protection in their buildings. So we have a very important relationship with them already. So when we come in and talk to them about the air quality standards, are they meeting ASHRAE standards, what level do they need to be, our role is to bring controls with anyone's HVAC system, we can improve the air quality. Now we're also kind of fortunate that we have -- because we're also a sensor company, we actually do have the world's best air quality sensors. In fact, we sell to a lot of our competitors because we have a great aspirating detection business that we've converted that now into air quality sensing. So I see air quality as being -- and it's what we learned in healthy building. We've shown through our traction in healthy building initiative that we do have a unique position as a controls company versus a heavy equipment company. So I think that -- I would say that there's one area that we're not going to be investing in, and that's owning the big hardware in a building because I think controls is the better way to play it.

Can I just add also, I mean, we designed Honeywell Forge to be an open system with API integration both into hardware, but also enterprise systems on purpose and to be hardware-agnostic. And that's important because if you're trying to solve some of these operational problems, you need lots of systems. It's not just one OEM system typically when you're trying to solve a problem. And that's because customers have one of everything. They're going to have Siemens. They're going to have JCI. They're going to have Honeywell. And you can't go in with a proprietary system and say we only work with our own equipment. I don't think that's meeting the demands in the market.

Just a question on buildings as well. And you guys have a very dominant in building with Niagara and Tridium on open systems. What we're hearing from the market is the competition is trying to sort of go after you because there's a massive hardware update on the controller side for the buildings a lot more capability. So people are trying advantage of this -- take advantage of this transition, it seems. Like every Analyst Day we've had over the past couple of weeks sort of highlights this is an opportunity. Can you just describe how you guys protect this market? And how you guys can go on the offense? Because clearly, smart buildings plays to your strength as well.

Yes. Well, we have over 1 million connected buildings on Niagara. Our Niagara Framework, it's basically the operating system that connects buildings. It works with every OEM. Every OEM is a partner. We have an ecosystem of over 5,000 system integrators that develop on top of the Niagara platform, and we continue to innovate on the platform all the time. We're introducing the next-generation JACE gateway, but also importantly, our first Niagara data services in the cloud. That's one of the key innovations this year. So the way to stay competitive, [ Andrew ], is to continue to innovate on the platform. We have a great installed base, but also we're bringing ecosystem, and we are committed to open. So I think -- I don't see so much as a competition as engagement with everyone in the ecosystem so that we can do a better job for our customers.

And I would just add to that. I agree with that. I think that the technology is part of the equation, but the customer relationships and the channel, that huge installed base that Que referred to, is a real good moat for us. So we have the Niagara -- sort of the independent side of Niagara. We have our internal channel with BMS controls, and we also have our direct HPS business. And all of that uses the same technology stack, and that gives us a lot of bites at the apple, if you will, with the customer. So that's another very sustainable part of our technology to back that up.

That's great. We're about out of time here. Really great discussion, I thought. And for now, we'll leave it here and turn over next to our transformation initiative, our final [ hand on ] the day. But thank you all very much.

Ladies and gentlemen, please welcome Greg Lewis, Torsten Pilz, Tim Mahoney, Sheila Jordan and Jeff Kimbell, for our transformation initiatives panel discussion.

It's a large group, and a very quick transition. Well done.

We're an engineering company.

So the precision is very welcome. So our final panel of today, a lot of great things to get into here. But Greg, let's start with you. So for a second, we'll take off the CFO hat, let's put on the COO hat. You've been the internal leader of what we effectively call the great integration of the last 5 years of Honeywell. Let's just talk about that process, the hows and the whys, where we stand today and not just value capture that it's generated thus far, but the value capture it's going to generate?

Yes. So we really outlined this for the first time. Darius opened it up in our 2019 outlook call and then followed that up with the Investor Day at that time. But a lot of this actually started even prior to that. We think about disintegrating ACS, creating 2 new business units, spinning 3 companies, creating HCE, launching Honeywell Digital, the integrated supply chain transformation. I don't -- this company has gone through such a tremendous amount of change management, I would argue, more than any company of our kind has done over this last period, which by the way has happened in the most volatile environment, certainly in my 30 years working. And we've invested over $1 billion in building our new IT infrastructure. We've invested over $2 billion in repositioning over that time frame. We've invested in capital, et cetera. And that was infrastructure building. And we've seen tremendous benefits from -- and my colleagues here will talk about some of those details, but we've seen tremendous benefits in cost savings, in capabilities because that's what we were trying to do is build scale, like have this company be able to operate at scale. And that's fundamentally what this entire thing has been about. And when I think about where we are now, yes, it is. It's the great integration. And that effort, we've sort of reached the peak of the hardest part, and now we're starting to come down the hill, frankly, and I think about it as almost the end of the beginning. And so I'm excited to have the folks here talk about some of the things that we have done and what we're going to do, but it's -- it underpins where we've gotten to, but what's in front of us is, frankly, going to be even more exciting than what we've done so far.

So then for Torsten, for you, there's a lot of focus on the efforts you were going to undertake in 2019 at our last Investor Day. Maybe just update folks on where we stand on those initiatives, how they're helping us win today and then also what's ahead for ISC from here?

Sure. So I think primarily what we've done is we really simplified our manufacturing and logistics footprint. So we took more than 100 factories out of the network, 100 warehouses. So we really created a much simpler structure from a logistics and from a manufacturing perspective. But not -- it wasn't only about reducing our manufacturing footprint, it was also to create regional manufacturing and more local manufacturing and distribution hubs. So this helped us a lot over the last couple of years, in particular in the pandemic, and it will pay dividends in the future, too, because our supply chain is much more resilient and much shorter. The other thing what we've done is we've built actually a digital backbone of our operations. So we really created -- we call it the Honeywell Digital Operations Platform is a digital way of how we connected everything with everything. And if you look at what's important now, it is actually real-time data visibility, but also systemic resilience. And I think that's what we've built over the last couple of years. Now in terms of how we look at the entire supply chain end-to-end, I do think we also invested heavily and continue to invest heavily in how we work with our suppliers, how is our extended supply chain. That means supply chain integration towards our own suppliers, and everybody knows the story of semiconductors. And as an example, we used to buy basically everything from distributors. And that's no longer the case. We have very, very strong relationships with direct manufacturers. And we have been able to secure most of our 2022 semiconductor demand already. So I do think that we fundamentally changed the way we operated. There was a lot of foundational work. And to what Greg was mentioning that we are a little bit at the end of Phase 1, the Phase 1 was primarily driven by simplification of footprint, network. We also took layers out of the organization. So we became way more agile and lean organization. And now the second phase is way more into automation, into more digitization of manufacturing. I do think the connection of both being simpler, leaner, but also more automated, more digitized, this is what the future of this operation is.

Great. And that's actually -- that's a good chance to bring Tim in the discussion. So think about the digital transformation, what approach did we take? And talk about maybe just cross-functionality or the end-to-end. Just help us understand how it all comes together.

Sure. Sure. So the approach that was laid out was develop, obviously, take a look and find aggressive, achievable, business-driven initiatives that are both actionable, measurable and closed loop process so that we're instrumented, we understand that we've achieved what was in that business case. Got to make it so that it's real that it is 1 of 2 things, impacts a different business outcome or customer experience. Anything other than that was not on my agenda, right? And so I think that it was very, very well defined. Two is there was a framework, and that -- roughly that framework was as follows, which is, one is you're going to redefine your processes, you're going to have data management that's associated with that, you're going to enable that from a technology perspective and then adoption across the business. So convergence for all of the GBEs are tracking. Again, there's a close of the process so that if there is a benefit from a cost standpoint, gross margin standpoint, et cetera, et cetera, to close loop process to measure that, that's actually achieved. There are 7 work streams that it has grown and has evolved. When Greg was leading this, this was actually like about 4 work streams. And it's all very measurable. So for instance, earlier today, Darius showed one of the foundational work streams. He referred to it as we're cleaning up the garage. So we've cleaned out the quarter's house, right? Having 148 -- going from 148 to 13 ERPs, that's important. But really what's important is, as we're sitting here, 99.9% of all the financials for Honeywell are in our 10 core ERPs. 99.9% across the entire corporation is in a core -- the core ERPs. And they're all enabled in one enterprise data warehouse. So what Torsten just talked about, that information liquidity is becoming so ubiquitous in order to be able to make real-time -- having real-time information to make informed decisions is really increasing our speed, and that is accelerating.

Sheila, do you have a -- thank you, Tim. Sheila, a couple of examples and definable examples within the transformation you can highlight for us.

Yes, absolutely. So hopefully, it's obvious that the digital transformation across Honeywell is quite broad. In fact, every single strategic business unit in every single function has a digital strategy. To give you some example from a platform and application standpoint, we have 21 strategic platforms, of which 20 will be completed, actually the complete deployment by the end of this year. In addition to that, about 95% or north of 95% will actually be converged or used on those 21 strategic platforms. And that goes across engineering, sales, marketing, all the technologies that we heard today. So that's one example. The other one that I'll just mention briefly is we've really done an amazing job, I think, on transforming our infrastructure and network. We have software-defined networking in 400 sites, and we're actually in the process of rolling out our tech stack for Torsten insights at our top 100 sites on the infrastructure to really make sure that becomes more modern. Now why is that important? Because as Torsten begins to and continues to automate the sites, we've got the infrastructure laid and appropriately laid across those top 100 sites. But the best example I can share with you is what we did around our contracts and legals team. We actually -- we digitized over 200,000 contracts, and you can understand the contracts with suppliers, with customers, and you could easily understand why that's valuable. But the real value is on top of that, we put in automation and AI technologies that allowed us to really look at certain critical data elements. So when we had an opportunity to do some pricing and look at what was pricing, what did we do? We actually used automation and AI technology against those 200,000 digitized contracts to find what clause in those contracts could we look for to have a pricing initiative. And I'll turn it over to Jeff to explain that a bit more.

Yes. So like every company in the world, over the last year, we've really experienced unprecedented cost inflation in commodities and components that we use to make our products. And in addition to the contract actions that Sheila mentioned, another thing that we really had to do was take pricing action very fast and in a very precise manner to deal with all this inflation that we are experiencing. And because we have been integrating data, digitizing our internal processes and deploying these digital tools, that really gave our teams across our 38 business units the ability to react fast and in a very precise way. So to make it a little more specific, we were able to take data from Torsten's team, from the procurement team to really understand exactly which SKUs and which parts of the bill of material in all of our products we're experiencing inflation so that we could take very precise actions and not do a peanut butter spread approach, which would be unfair and hurt demand in some products. And so with that data integration, we were able to make those price increases in a very surgical manner. We have automated tools that enable us to do that. We have other automated tools that automatically update our ERP systems. And then through all the transactional data that flows back into our data warehouse, we can confirm that the actions that were taken were the ones we wanted. And just to share kind of the order of magnitude and speed we were able to achieve, we identified 600,000 SKUs that we needed to take a price action on. And we were able to do across 38 businesses globally in about 2 days. And before we had done all this data work and the process digitalization, that would have taken us 8 weeks before. So that's just an example of the speed that we were able to...

Yes. Just to be clear, though, Darius wanted it done in 1 day. So we failed at it, but it did take 2 days. Sorry, Greg.

Yes. No. For many of you, though, I've spoken to over the last few years, I've said this a number of times, but I shudder to think what it would have been like to go through these last 3 years in particular without having built so many of the capabilities that we have put in place, whether it was the infrastructure that Sheila spoke about or some of the capabilities that Torsten and Jeff are highlighting because all of those things have been helping us to address real problems. And I think the right word you mentioned, Tim, was speed. I mean just the amount of time it would have taken us to react to certain things like this would have been measured in weeks or maybe months or maybe just not even possible. And the high-class problems we're dealing with now are just far and away different than they were 5 years ago.

Yes, Sean, I would add one additional point, which is, and I think it touches on what's been discussed here, which is one of the things that I think that Honeywell did that's very unique here compared to others, so I talked to some of my peers, is that right from the get-go, it was defined as we're going to do this across the value chain. We're going to digitize across the value chain. We're going to start with marketing and move -- and it's not sequential. We're going to take the entire beach front. So if you think about what we're talking about here, it's marketing, commercial excellence, sales excellence, integrated supply chain, both sourcing and manufacturing, engineering, what we're doing relative to automation and engineering and so on, customer support. So across the entire value chain, when you look at those processes that we've redefined and enabled, those 21 platforms that Sheila mentioned, it goes across the value chain. And that's why it's of significant value because the point of the -- having the discussion around contracts, it's not just on the buy side, it's on the sell side. So one of the things that has been of enormous value -- enormous value for me means operating margin expansion or growth, we're able to actually take what we signed up to contractually on the buy side and on the sell side and do those comparative and that gap analysis and make those changes going forward. So I think it was a very smart thought process around, don't go deep and just in one area, approach this across all of the [ electives in ] the business.

So we've highlighted a couple of examples of success where we're starting to see the benefits from all this heavy lifting last several years. So open question to the group, but how are we going to ultimately define success of digital transformation? And from each of your seats, what are the biggest pieces -- buckets of value captures that are still on the board for us?

Yes. So I guess up to this point, I've measured success. For those of you who know me from my previous life, I'm a numbers guy, right? So it's -- you need to quantify it. But I think that where we're at, I measure it 3 ways. One is, are we delivering the value that was associated with that business case because I'm committing to Greg or the SPG leaders or Darius that when we do this, this is what's going to be different going forward. So one is delivering the goods. Two is when an SPG leader or a functional leader calls and says, I want this pulled in from 2022 to 2021, that looks like a success to me. Because that means that the business and functional leader is recognizing the value and there's this pull. And then lastly, but going forward, it's going to be about speed. It is so the availability of having one enterprise data warehouse with all the transactional data across all of Honeywell at people's fingertips is just -- I think it's -- it becomes almost boundary-less, but I think the big parameter output or the attribute of that is going to be speed. That we're going to be able to operate and action, think and act much sooner than what we had previously. That's my thoughts.

Yes. So for me, what I would say is that we've done, we're on the path to really digitize each of the functions. We've heard that a lot today, and we're getting the value from those. But to me, the real value, as I've talked about it earlier, is this whole notion of end-to-end experience. The reality of what that means is when you up-level that, it really is offering a digital experience to our customers, partners and suppliers, when we can stitch everything that we've done together, when the data will follow you through that experience and when we can actually deliver that digital experience, which is smarter, intuitive, frictionless, seamless. We're going to get all sorts of value that will fall from that. So that's really the next level as we can pull all this together and tie it together, both from the data that flows through that experience, I know who you are and I know what you want and I can recommend things to you, but also the analytics we're doing behind the scenes.

Yes, I agree with that. I think in the commercial area, there's a lot more we can do to enable and help drive margin expansion, which is obviously one of our big financial objectives. And having the level of detail and the level of analytics that we now have will be one of the key ways in which we drive that. And then the other one, which is building on Sheila's point a little bit, is we're building out a true customer 360 view of all of our customers. which pulls together marketing data, sales data, service data, project implementation status so that anybody in the company will be able to understand all of the interaction points we're having with our customers. And we'll be able to serve them better. We'll also be able to identify growth opportunities a lot better, too. So really excited about that.

I mean for operations, it's relatively straightforward because everything is measurable. So supply chain has 3 main dimensions. It's your cost position, how much cash do you need in order to operate and what's the performance towards your customers. So it's very simple to optimize 1 of the 3, maybe 2 of the 3. But to optimize all 3 at the same time, that's the trick. And our transformation is helping us with doing this. But now that we live in a world of constraints, and be it material constraints, labor constraints, logistics, pressure, what will be a measure of success for us is how much are we able to support the growth potential of this company to relieve those constraints and overcome those obstacles, how much -- how are we able to support that. And I do think with, like I said, real-time data visibility and end-to-end connectivity, that's the -- these are the key components of that success.

So Greg, maybe let's take off the COO hat, put back the CFO hat, put that back on. Let's just sum up on what we learned. Why does it matter so much? How can it directly impact our expectations around capital needs, repositioning, how this is going -- how all we talked about is going to fuel the growth in organic as well as margin expansion that Darius laid out earlier today?

Yes. Yes. I mean I'll talk about it in my session here in a few minutes, but I mean it's going to have a declining requirement of investment to some degree. Now again, you didn't see a lot of the IT investment because in true Honeywell nature, we did it through reallocation. We create productivity and room for investment. But the investment in repositioning is going to come down over time. Some of the CapEx requirements with all of what Torsten has done with the supply chain simplification is going to come down over time. So there's going to be a bit of a less requirement in terms of investment in capital and expense and so forth. But to me, this has always been about the ability to create a scalable capability for our businesses to win in the marketplace, whether that's commercially or operationally. And that's what we're after. The use cases are going to change each and every year. We're going to have different challenges that are going to come up. But the fact is we're giving our businesses the tools to go out in the marketplace and beat the competition. And whether it's through creating greater capabilities from a commercial perspective or creating the ability to deliver or to go get product in a way that's outsized advantage versus our competitors, that's what this is all about. And to Tim's point, it's going to come down to increase growth, increase profitability and generating greater and greater cash flow.

So this is -- we'll open up to questions again here in just 1 second. Just one more piece, Greg. So as you think about a lot of the energy resources capacity internally that's been consumed by all these processes, that's something that's difficult for an outsider to see on the look in.

Yes.

As we've crested, as you said, what -- how should investors think about what that means in terms of the organization's capacity to take on other things that maybe...

That's a great point. The level of energy that's gone into everything that we've done, again, the changed management that this company has been through over the last 5 years has been dramatic, and it's taken an enormous amount of leadership and people capacity to go do that in addition to the dollars and cents that go on it. And Tim will remember this because when we were doing this in the very beginning and talking about could we afford X, we were always talking in dollar terms. What we had to turn that into, though, was how about people terms, do we have the human capital to do these things? And so as I mentioned, now that we're coming down to the end of the heaviest of the lifting, that's going to just free up time for our people to go work on other things. We all want to do M&A. We all want to do inorganic opportunities. Well, guess what, this is going to free up time from having to be working on how the business works to working on what do our pipelines look like? Are we building the relationships and looking at the markets in a broader way? And are we able to then go and create more capacity versus deploy capital, which we all want to go do.

Yes. I'm just trying to kind of like connect the dots here because you guys put out a long-term guidance that has like 30% incremental margins, if I do the math. It sounds like you guys outperformed when it came to supply constraints. I mean there was hundreds of millions you guys missed on supply constraints. I mean when are we going to see all this goodness kind of like come through and actually differentiate because right now, at least this year, the way you've guided and in the first half here, it's not like it seems like a lot of this is like really paying off, maybe it would have been worse, I don't know. But like I think you're insinuating that. But in the numbers, it just doesn't -- some of the segment numbers, I think, look a lot better than the consolidated. Maybe it's in segments, I don't know. But when do we get to kind of taste the results of this investment?

Sure. Well, again, honestly, I would tell you that we've continued to create the margin expansion that we have, why we've been making these investments. So we've done both over this time frame. The question that you're posing is a bit of a short term, long term. And I talked a little bit about this last week when we were out, talking to some investors as well. The -- our conviction in what this company can deliver is very high. The environment that we're in right now, very unstable. And where our guidance is really representative of the supply chain constraints that we have, they're very discrete. What's going to happen in semiconductors will become apparent as that capacity comes online. As the Aerospace supply chain heals, we'll see that recover. And the past due backlog that we talked about [ where we leave ] itself. But beyond the short-term challenges that are really more in the environment as opposed to Honeywell, you're going to see this acceleration as we get through that time frame. And again, I would tell you that Gary showed the slide earlier, we've generated 50, 60, 70 basis points of margin expansion and 4% to 5% growth. Our conviction on being able to accelerate that beyond the environment that we're in today is very high.

And then, Torsten, any update or any kind of visibility on kind of a bend in the curve of all the supply constraints out there, maybe just kind of an up-to-the-minute update on what you guys -- I think some companies have been a little more positive, hate to use the term green shoots, but like anything there?

Yes, we see some green shoots. But at the same time, we also see additional risk, as you know, what's going on right now in Europe. That's an additional, let's say, curve ball that's been thrown at us. But I would say on the -- in particular, I think our biggest impact is on the semiconductor side and then on some commodities on the Aerospace side. And on the semiconductor side, I would say, yes, second half this year should be significantly better, both because we put a lot of effort into redesigning and reengineering some of our products. But at the same time, there's additional capacity coming on stream and will be available for us. And I do think we have already reached a relatively high level of supply security for semiconductors for this year. We're not quite out of the woods completely. But for now, I would say it's cautiously optimistic. And on the Aerospace side, that's all primarily a couple of commodities. And they're working very, very hard to increase capacity there. And I think we have a pretty good plan to go do this. And then I really think second half this year is something where we should feel a better supply position for us.

I just want to maybe add to that, Steve, which is I think something that also has to be appreciated. The smaller you are as a company, the easier it is to deal with supply chain issues, right? Because you don't have the wide variety of products, installed bases, supply chain. So we're pretty large. And we have a pretty big domain installed base as we talked about today. So I think the sort of the greater the age of the company and the greater installed base and support for all those products, it's directly correlated to the supply chain. So I would argue that the capabilities that we've built actually have enabled us to perform well. I think if we hadn't had them, it will be much more soft.

Andy Kaplowitz, Citigroup. So maybe this is for Torsten. Just a little more color on the transformation itself in terms of -- are you still taking factories out? Could you give us a little more color on the automation spend moving forward? What exactly are you doing now? And then you're obviously focused on regionalization early, but how would you -- how have you responded to arguably the more recent deglobalization that we've seen, for instance, that you're reshoring more what you're doing there?

Okay. Well, are we completely done with our footprint rationalization? We are not. But the next 2 years, those will be significantly smaller numbers of adjustments that we are going to make. So I do think the heavy lifting in terms of footprint rationalization has been already done for us. So -- and then we will probably reach a certain level of maintenance where we, over many years, do smaller adjustments. We will never really stop at this. Your second question on how did the regionalization kind of actually happened and what did we do? Yes, we -- in the beginning of this transformation, we already made, like 3 years ago, the decision to really regionalize this. And we've done this very, very focused. And it actually helped us in -- I'll give you a number, 2020, 2021, the whole pandemic time, we lost 1 day of production on average per factory. So we didn't have to shut anything really down because our supply chains weren't really interrupted at some point. And your last question was automation, what we're going to do and how is that working? So what we've done is we created a subset. We are focusing on our 20 biggest factories. We created a program over the next 2 to 3 years to invest in significant automation technology. And what this means is our capital that goes into these investments will double. It already doubled this year. It will double next year again to really drive automation in there. And it's not only factory or pure machine automation, what it means is it's the connection of an automated factory with the digitized infrastructure that we've built. So the way you want to think about this is you have a digitized infrastructure where you have transport management system, manufacturing execution system, ERP systems, all kinds of different systems. No matter what they are, are some sort of connected in our operations platform. And now you also feed machine information in this. And it gives you tremendous availability of data, and you can do a lot of things. And that gives you opportunities to optimize your manufacturing, your operations processes in a way that a human brain cannot do it because you have so many different data points available. And I do think we made some good progress in the last 2 years already. But for the next 3 years, I really think that since we doubled down on this, this will really drive significant value for us.

So you highlighted some pretty big numbers, $1 billion from supply chain, $1 billion from digital savings in Darius' presentation. I'm just wondering how you think conceptually about the dollar savings like this. I mean when you're planning, how much of that drops through the bottom line versus how much gets reinvested? That would be my first question. And the second one would be, you talked about transformation from a very high level. Maybe talk about the businesses, the segments, which ones are further ahead, which ones are lagging? That would be quite helpful.

So the $2 billion actually is a combination of growth productivity and working capital. So it's a bit of a mix of all 3. I mean some of that's coming from Torsten's capability to really drive greater savings back to the supply chain. Some of it's going to be through as automation savings within the factories itself from a conversion cost perspective. And then some of it's actually revenue growth associated with what Jeff and the commercial teams are going to go to be able to do both from a pricing standpoint, if you think about 80/20, et cetera. So it actually crosses quite a long road across the entire P&L and balance sheet. Now to your point, you can take a look at all the sets of numbers and go, this all adds up to a lot more because we are reinvesting back in the business, how are we affording the ability to go back and invest in R&D and things like HCE or in things like in Aerospace with some of the things that Mike spoke about, I mean these things are funding our ability to go back and invest as well. So when you think about it, that's why we're ultimately committing to a margin expansion profile that's taking advantage of the benefits that we're getting, but also we're going to always hold that to be able to reinvest something back in the business because what we're looking for is the long term. We're not here to print the best number we can in 2022. We're here to make sure that this business is healthy for 5 years, 10 years, 20 years ahead of time. Now as it relates to the segments, they're all in various stages. I would tell you that HPT, for example, is probably close to done from a footprint standpoint. And then George spoke a lot about SPS where we had done a dramatic amount of our M&A. And so they still have a lot more work to go on the footprint side. Aerospace is probably the furthest along in machine-to-machine. They've been with 1 ERP for the longest time. So every one of them has a little bit of a different emphasis in terms of where they are, ahead or behind. And that's also on purpose, too, based on what their needs are. So we're trying to take a little bit of a differentiated approach. To Tim's point, we're touching the entirety of the value chain. But different businesses may have slightly different priorities depending on the business problem that you're trying to solve.

Well, great. Great discussion and a good way to wrap it up. And so from here now, Greg will be on next with our financial review. Thanks, everyone.

Thanks very much.

Okay. So on the book end here. So we'll take the next 15 minutes to complete some of our prepared discussions, and then we'll go to a broader Q&A. So my message for you today are really 3 things. Number one, we just finished the second year of strong execution in what's been a very difficult operating environment. I don't have to tell you we've gone through the pandemic hyperinflation. We just talked about the supply chain challenges that we've been facing. And we've hit or exceeded our guidance metrics. And in fact, we're back to 2019 levels in terms of margin rate and EPS on $2 billion plus less revenue in that time frame. The returns on our transformation initiatives, we just talked about them, ISC, Digital, you heard from Que and John and Doug around HCE and what's been happening. They're in full swing, and they are delivering real benefits to the top, the bottom and our free cash flow. And we are generating strong cash that's creating a lot of opportunity for robust cash deployment. Darius talked about accelerating our capital deployment to at least $25 billion over the next 3 years. And it's things like our record working capital, our mid-teens free cash flow generation. I'll talk a little bit about the opportunity Darius mentioned on acceleration or monetization for Quantinuum to fund that. So we think these are very compelling results that we've had. But more importantly, we've got a lot of opportunity for the future. And like I said earlier, I think this is really just the end of the beginning with our transformation. So just in terms of 2022, in the first quarter, as we stand here today, we're on track. We're on track to our guidance range for the quarter and for the year. Things are playing out as we expected on the supply chain. We just discussed the challenges that we have to battle both in the semiconductor space as well as in the supply chain and Aerospace in particular. But we are seeing some signs of improvement. In Doug's business in particular, we're seeing some loosening in the supply lines for him. So through February, things are in the range of what we outlined. As you know, 50% of our quarter is always in the third month, and that's been actually even a little bit more than that over the last couple of quarters with supply chain. We are continuing to monitor the situation in Europe very closely. Torsten alluded to it. It's evolving very quickly. There's no change in our guidance associated with that. It's too soon for us to really determine, but we are looking at that very closely. Our thoughts are really with our colleagues in the region. Frankly, our first priority is about the safety of our employees. So let's maybe look a little bit at the fundamentals. And again, I want to start with consistently investing in our business, and that's a little bit what some of you have asked about. I mean we're investing for the future. We've done it for a very long time. You can see from this chart between CapEx, R&D and customer-funded R&D, what our investment profile has looked like for the last 4 to 5 years. And we always get strong returns on these organic investments. And we talked about it in the earnings day, '22 will be a step-up in CapEx for a year for some of the growth opportunities that we see in front of us. And we are going to accelerate our R&D to fund growth, again, in places like Quantinuum, in HCE and in Aerospace, just to name a few. But if you look at the right-hand side of the chart, you can also see what I was mentioning in the transformation discussion. We've invested about $2 billion in repositioning over the last 5 years, between $400 million and $500 million per year, given all the heavy lifting that we just talked about. And that is going to start to moderate as we kind of come down the other side of the hill here back to a level that's more like pre-2017 time, maybe $150 million to $250 million per year over the longer term. But I think the message really here is we consistently invest in our business while growing margins. For Honeywell, it's not an either or. We don't say this year is a year of investment, so therefore, we're going to downgrade our margin expansion. We're delivering margin expansion throughout this time frame, while we're making these investments for the future. So we do both. When you think about the growth levers, our organic investment and the business mix that we have gives us a lot of levers for growth. Again, you heard both Darius and Suresh speak about what we do from an NPI perspective. The teams have really dramatically increased our new product introduction, Vitality, over the last 4 or 5 years. Improved it by 10 points, frankly, since 2017, and we see that continuing. You heard from some of our breakthrough leaders, and you see that we've generated over $2 billion from BTIs that are in execution over the last 3 years. That's going to continue. And then when you look at the bottom half of this chart and think about the mix of our business, software and related sales mix, about $8 billion overall. And that underpins about 25% of our business. And we've expanded our view of what that is. That $8 billion you see on this chart represents software, services and software-enabled hardware sales. Because you think about places like HBS and HPS where Vimal spoke about our Experion Process Knowledge System, which really drives what that business sells. We're not selling a cabinet with controllers in it, we're selling the software and the value proposition from that software that drives the value for our customers. And then when you look at the bottom right of this, you think about the recurring revenue part of our sales mix. We see that as being about 30% of the total. And again, here, we're talking about recurring sales either via software are high-value aftermarket sales. So some examples are things like our UOP catalyst sales, our aero engine and APU aftermarket, our MSP programs, our process solutions, building solutions and Intelligrated services businesses, our stand-alone software and SaaS sales that Que is building. All these give us a very resilient and high-margin portfolio from which to drive growth. And then again, on a margin expansion side, we resumed our margin expansion in '21 post the pandemic, plus 60 basis points in the year to 21%. Our accelerations and transformations that you heard about in the panel discussion, plus our software sales and services growth, that's what's been able to generate these kinds of results year after year after year. And those are going to continue to drive accretive margins. And now Darius highlighted the 40 to 60 basis points upgrade in terms of our long-term framework. And that's now -- we've upgraded our long-term framework to 25% for Honeywell overall. We were -- last time we talked, we were talking about a long-term target of 23%. So we see 200 basis points more opportunity in our long-term target than we did just 3 years ago. And when we talk about CapEx, we've had a lot of discussion about this as well. High-return growth and productivity CapEx are now a greater share of our total capital. It's over 50%. And our sustainment and our maintenance capital is actually down about 20% since 2018 and '19, again, due to some of the efforts that Torsten has done specifically around really simplifying our footprint. The high-return projects like Solstice and our UOP catalyst capacity examples that you have here have driven top line growth at very accretive margins to our overall portfolio. And again, we've demonstrated our willingness to flex up CapEx as these opportunities come, which I think as investors, you would want us to go do to capture them. And our wins in important areas like FLRAA that Mike talked about for the engine program there and Vimal and Ben talked a lot about advanced plastics recycling. These are just a couple of examples of programs that are in our near-term pipeline as we move forward. In working capital, this is one I'm really proud about. The working capital story for us, it's really a differentiator for the company. And it's been on an accelerated improvement path. You can see the numbers relative to our peers. We're above our peer median. 9 turns for us this year is a record for Honeywell. It's up 1.9 turns versus the prior year and up 3 turns from 2015. So a lot of emphasis and effort has gone into all elements of working capital, whether it's driving our world-class payables, doing the hard work on accounts receivable and now everything that we've been doing around inventory. And frankly, that's going to be -- inventory is going to be a big opportunity for us as we go forward. But again, here is where you're going to -- the next phase of our transformation really moves from more of a siloed approach to more of this end-to-end value chain improvement that you heard Tim and Sheila and others talking about. That's really what's going to unlock the next phase here for us in working capital. And then on free cash flow, the main takeaway really here is we're fundamentally different business than we were a decade ago. In 2012, 7% free cash. Margin, we doubled that and then some. And we've dramatically changed our cash generation capability over that time. Substantially, that's above our compensation peer group. You can see the line there in terms of the 20-or-so peers we compare ourselves against. And we're clearly above that peer group median. And predominantly, it's been done through profitable growth and working capital management. Our long-term free cash margin of 14% to 17%, that's how we see it going forward from a long-term perspective. And that excludes any cash we may get from Quantinuum, which I'll talk about in a minute. But that's something that we feel very confident in being able to deliver. And as I said, there's going to be a lot of efforts around our transformation that are going to help us to create that outcome. But -- as I mentioned, that's not the only source of future cash. And Darius alluded to this earlier around Quantinuum, and I think some of you asked about our plans for Quantinuum. And I guess what I would say is the next phase for Quantinuum for us is to bring it to the public markets. Now it's got to be done at the right time, under the right conditions to make sure that we maximize the value that we do get, and we also optimize talent, capital structure and commercial advantages. So it's going to be one of those things that we'll have to thread the needle on, which I'm sure we'll be very thoughtful about. But it's going to be an opportunity for core Honeywell in a couple of different ways. On the one hand, it's going to give us an opportunity to monetize portions of our 54% share over time. That's what we own today. You can clearly see on this slide that we're not saying what it's worth. And we think that, that could be a very sizable opportunity from a monetization perspective. And as we buy ourselves down over time, that's going to bring cash generation to Honeywell, not free cash flow, but cash none the same that we're going to be able to deploy back into the core business and other opportunities, be it CapEx, M&A or otherwise. So there's both a valuation upside to our investors. Darius mentioned buying into this at this time. You're getting a stake in Quantinuum at an industrial multiple. So there's the opportunity for that as well as the opportunity to bring more cash into the portfolio for us to go back and deploy additionally to drive growth over the longer term. And when we think about our capital deployment strategy, we've stepped up our capital deployment over the last 3 years to $24 billion. It's over 20% of our cash flow from operations. In fact, it's [ $126 million ] to be exact, but I'm not a numbers guy. But we've done that over the last 3 years, and we intend to accelerate that further, as Darius highlighted, in the next 3. Our strong balance sheet and the cash flow generation that I just mentioned gives us a lot of confidence in our ability to deliver robust firepower, $36 billion to $39 billion between the cash that we have on the balance sheet today, the operating cash performance that we expect and what we still think is incremental debt capacity to tap into if opportunities present themselves. And again, that doesn't include the opportunity of additional cash from Quantinuum. So as we think about that monetization, that $36 billion to $39 billion number goes north with the monetization opportunity for Quantinuum. And M&A is aided by the freed-up capacity that I talked to from a people perspective, I think is what we discuss in our transformation panel. That organizational capacity married with this robust firepower is going to be a priority for us. And Darius highlighted, at the beginning of the day, the stepped-up share repurchase, $4 billion this year alone. And our share repurchase is going to be an accelerator. So we're very excited to be able to go and deploy this capital to grow the company for the longer term. And just to touch on the M&A framework, Ann mentioned a few of these things. But portfolio management is a staple of the operating system that we run. It's not something that we did it, we put it on the shelf and we're done. We're always looking at how to optimize our portfolio. We have a set of plays in our playbook that are just waiting for the right opportunity and time to make sure we get the value from those things that are in our portfolio that maybe don't fit anymore. At the same time, keeping our portfolio aligned to macro trends from an acquisition perspective, keeping that refreshed. Adding new capabilities and vectors and end market exposures to the portfolio, as we've done with deals like Intelligrated, you heard a lot about Sparta today and what a tremendous addition to the portfolio that, that's been. That's a hallmark of our M&A approach, and it will continue to be that. When you look at our framework, it's largely unchanged. We're always going to be looking for technology differentiation, opportunities to use Honeywell Accelerator for management self-help because we think we can bring something to properties that we bring under our control. And lower cyclicality are major factors as well as ESG, as Anne described earlier. That's been an element for us and will continue to be as we move forward. But we are very much committed to accelerate our deployment of capital in this area. And as I mentioned earlier, I think we're going to have a lot more organizational capacity to go and do that. So as Darius talked about, I mean, all of this -- all of what we've discussed, our core growth though NPIs, the tremendous end market tailwinds that each of the presidents talked about, our BTIs like STS and Solstice, our continued growth in software, our alignment to these macro trends that we discussed, all underpin our upgraded financial algorithm. As Darius talked about, we upgraded our organic growth to 4% to 7%, our margin expansion to 40 to 60 basis points, and as I described earlier, an additional 200 basis points on our overall margin target to 25%, all of that with a best-in-class free cash flow margin generation commitment. So this organic growth framework, coupled with an upsized capital deployment commitment of at least $25 billion over the next 3 years, including that $4 billion of share repurchase in '22, we're very confident that this is going to generate outstanding and accelerated long-term value creation for our shareholders. So to sum it up, once again, we've demonstrated you can count on Honeywell to deliver in all environments, which in an era of increasing volatility, which I would think we would all agree we're in, is differentiated amongst our peers. Our operating system is not an either or. We generate growth and productivity. We provide space to invest in our business in the short term and the long term while continuing to expand our margins. And our transformations continue to provide fuel to optimize both earnings and cash. I meant what I said earlier. I think we're at the end of the beginning. Our last 5 years has been transformational. I am so proud to be standing up here today. It's days like this that make me just so proud to work for Honeywell, everything we do. Our confidence in our conviction, in our future and our ability to accelerate our financial algorithm is as strong as ever. And I'm here to tell you that the best truly is yet to come. Thanks.

Ladies and gentlemen, please welcome Darius Adamczyk, Anne Madden, Doug Wright, Vimal Kapur, George Koutsaftes, Que Dallara, Mike Madsen and Sean Meakim to the stage for our executive Q&A panel.

All right. We found room for everyone. Let's start with Julian.

Thanks a lot. Maybe a first one for Darius and also for Greg really around capital deployment. So I guess one point is that I think Honeywell has got criticism in the past about not deploying cash in times of, say, economic downturn when asset prices get low. So I suppose if you see some kind of similar macro downturn in the medium term, should we expect stepped up capital deployment in that downturn, the next one? Or do you think a sort of steady approach that Honeywell has used in the past upholds? And then just sort of a second clarification one. You talked about the at least $25 billion over 3 years. Just wanted to check if that's including dividends? Because you had that later chart, Greg, that showed a $24 billion to $27 billion number, which may have been without dividend. So I just wanted to check that.

Yes, I'll take that one first. The $25 billion plus is inclusive of dividends, CapEx, M&A and share repurchase all in. So that's the way you should think about it.

Yes. And then on your first question, yes, I mean, I think we are thoughtful about timing of when we do things, when we divest things or when we acquire things. When markets peak, we typically want to be divest. When markets are down, we want to be acquirers, or frankly, markets are down now. And that's why we made a very specific commitment about at least buying back our own shares. And the M&A environment is better, we obviously still have plenty of cash left on the balance sheet to go after M&A. I would say that sort of the market downturn is fairly recent. So it's kind of soaked in for a while. It's not as if the people look at the market value and say, okay, now my company is now worth 20% less than it was 2 months ago. Nobody thinks of it that way. So it's got to soak in. But in general, your point of view is accurate. I mean, we want to be thoughtful about when we buy and sell things and we always think about it. And it's even really important. We think about this, in the end section, when we think about, we actually have a point of view as to when it's the right things to add or subtract from the portfolio and timing does matter. You create much more value.

It's Sheila Kahyaoglu with Jefferies. Greg, maybe on your presentation. You alluded to, there's a lot going on with digital transformation, and now you have more capacity for M&A as you guys think about it. What do you think would benefit most from your framework that you've put in place with digital transformation? Is it smaller companies, larger companies, product companies, software companies and then in terms of the existing portfolio, how are you reading them on what creates long-term value?

How am I grading the...

Gradnig the segments or businesses? Is it revenue growth? Is it revenue growth? Is it investment required? How do you decide what's strategic?

Sure. Well, I would tell you that we've actually prioritized our transformation over the last few years on the front end. Because, listen, we've been doing functional transformation in its early forms for 15 years. And so that was previously focused on finance, HR, IT, legal, et cetera. And what's been different over this last 5 is actually what we've been doing on the front end of the business. And so when you heard Jeff talking about machine-to-machine and doing our dual marketing platform trying to create more frictionless interaction with customers I want growth. The productivity thing is good. And by the way, we've gotten a lot of productivity on it, but the multiplier effect to me really is coming more from a growth perspective, whether that be pricing, whether that be creating greater pipeline. So when we look at the areas that the businesses are focusing on, a lot of the emphasis is actually on the front end. The back end, I don't want to say we take it for granted because it still work. But the things that get probably more of the attention, frankly, are really on the front end.

And then, Sheila, maybe I could answer the question on the portfolio lens that we look through. When we do the work that we do every year to evaluate our portfolio, we take it down to the business unit level. And we look across criteria that you would imagine, we look at revenue growth, we look at op income, we look at technological capability and vitality of innovation. We look at cyclicality, et cetera. There are a whole dimension of measures that we look through and put our own portfolio through the lens, they are no different from the criteria that we look through when we evaluate target companies against our strategies.

Just Greg, to clarify, you talked about CapEx or maintenance CapEx down 20%. How do you -- what kind of drove that? Was there a cut in rooftops or something like that?

Well, absolutely. I mean if you think about what Torsten described earlier in terms of the rooftop rationalization, that's absolutely bringing down some of the requirements for having to have sustained CapEx across that entire network.

Okay. And then Darius, what was the catalyst to moving towards what's now called the Honeywell Accelerator versus HOS? And what's really the difference that drives that?

Yes. I mean, HOS was something that I talked about this morning, something very different. It was a big effort that they've launched a decade plus ago to really to focus on optimizing inside the manufacturing shop floor. And by the way, it was some really good work in terms of driving lean, single-piece flow and optimizing how IC operates. And I think it was terrific. But it wasn't a comprehensive operating system. What we want to create now, and that's why we want to rename it is, it's a comprehensive operating system around all the functions, all the businesses and how does one run a Honeywell business or a Honeywell function has a set of tools, processes and so on. And by the way, all of that gets reinforced through my operating reviews the CEO operating reviews, a functional leader operating review. So when you joined Honeywell, it doesn't have to be a mystery to you. You go as Honeywell accelerator, you can learn about these things. You're going to get stuff online about it. You're going to get in person, and it's going to get reinforced weekly, monthly, quarterly and the reviews that we do. So it is truly an operating system in terms of how we run Honeywell and we want to institutionalize it. And by the way, it is very much a living thing. So we're going to add tools. We're going to maybe emphasize some at others, and this is kind of how we operate at Honeywell.

A couple of questions. It was earlier in the day. So hopefully, I'm remembering it correctly, George. You set a goal -- an update that you had a 15% decrease in the number of suppliers. And if I understand that correctly, the simplification effort. But just in this environment with supply chain constraints, I almost think it would be the opposite. You're adding suppliers to make sure you have dual sourcing, so just if you could clarify that? And then for Darius new product vitality index, a number of companies are moving away from that metric. And when I hear a number of 33%, at some point, you can have too much of a good thing, and it can be almost distracting for the organization and sometimes the product folks have an incentive -- the wrong kinds of incentives to create a new product, if that's the way they're measured. So just talk about can you have too much of a good thing there?

Okay. So I'll handle the supplier question. So it's a good follow-up question for you to ask because it might sound illogical, but here's how you have to think about this. We have over 6,000 suppliers supporting our business today. who really mattered us in terms of 80/20 are about a couple of hundred, right? And what we need to do is kind of increase our presence for those couple of hundreds and make them more strategic, so we have better reliability out of them, put them in our rigorous operating system of making sure they're meeting our quality requirements, on-time delivery requirements, et cetera. That takes work to do, and you can't do that across 6,000 suppliers. So what you need to do is fire some of the suppliers that detail the supply chain, increase your presence and visibility with the more strategic ones in your supply chain, and you're going to have better performance overall. However, one thing I didn't mention that I'll follow up on, though, is we also have certain suppliers who are single or sole source with. So we actually have a program to dual source. So the net effect of that is still supplier reduction.

And then on your second question, I mean, the Vitality Index is a metric that we happen to like, we don't use it blindly. And what it means for George's business versus, let's say, Mike's business is dramatically different in terms of what the number is. I mean you're seeing a blended number and George would probably be an outlier in terms of his number and then probably Mike is on the other end of the spectrum. So don't think about this as like we set some hard goal, and you better be there. But it does -- it is indicative of are we really innovating. Are we bringing new solutions and so on. The other key metric that frankly, we didn't talk about that we also measure and probably put more emphasized than anything else is market share. I mean, mark -- at the end of the day, the NPI Vitality is a means. The end is, are we gaining market share or aren't we? And that's something that we measure in just about every business that we're in and are we gaining share, but there is a correlation in general. I mean the more you're innovating, the more creative your solutions are generally gain market share. I mean I would point to George's business and some of the wins we've had in PSS and some of those things, which is they're really out innovating some of the competition and doing a great job. So -- but don't view it as, okay, blindly, you got to be at a certain level or it's not bad, but it's an indication, but I would say we very closely couple it with market share in the quarter.

So on the guidance for this year. I think previously you guys had only embedded like a 1% reduction in the share count, and now you're saying 4 billion of buybacks. So is there some offset for that in the rationale for not changing the guidance? Or is the buyback still not included? And then just one clarification on the long-term margin forecast. This year, you differentiated between margin expansion with and without Quantinuum. Is that margin forecast with or without Quantinuum investment?

So we have not rolled anything into the guidance relative to our $4 billion because it really is going to depend on when we do it. And so that's -- it's not like we rolled it in, and there's something that went off the other way, and we're guiding down slightly. That's not the case. We'll tell you more about it as we firm up our plans for exactly when we deploy the capital against that. And you should think about the 25% margin target as long-term all-in because the portfolio itself is going to shift over the time frame as well. So that's the way I would think about that.

John Walsh with Credit Suisse. Maybe just a first one Greg, you had lower repositioning in your slides. Just curious as we think about below the line, is there any offsets to that, like pension just maybe giving interest?

If I could predict the interest rate environment to tell you what pension would be, I wouldn't be sitting with this distinguished panel, I'd probably be at the casino. So no, we've not contemplated what pension will or won't do with interest rates in the future. Obviously, it has to do with both the discount rate and our return assumptions. So there's no implied offset anywhere else. We'll obviously evaluate that each and every year as that time horizon goes. But the repositioning is obviously in our control, right? That's something we can plan and think through and have some outlook on that's got some dependability around it.

Yes. And just maybe one other comment on repositioning. I mean if you go further back, I mean, we didn't deploy repositioning at these levels that we have in the $400 million to $500 million. And range in, let's say, that 2010, 2012 kind of time frame. As we get through these big transformation programs, we're already kind of on the other side of it, particularly what Torsten has talked to you about and some of the investments, that number will come down, and obviously, that would fall to EPS. I mean that's -- it's just that simple. But I think what I think should be exciting is that these transformation efforts, both in terms of growth and in terms of productivity enable us to really provide a whole new growth algorithm that I think is even more compelling than the past. And now we're a larger, more profitable company usually don't go in that direction. When you get to be in your profitability in your 20s, low 20s, you're going to actually take your profitability targets up. We're doing that whilst taking our growth numbers up and being that much bigger. So that gives us the -- and that's indicative of the kind of confidence in the transformation that we've undergone.

And then just the other question was around Intelligrated. So I just want to make sure, I guess, if I understand the message correctly, it seems like it's now a $3 billion business growing quite strongly, big secular growth themes behind it. Kind of the message to me at least seemed that you wanted to get the margins higher there. I guess in the near term, why not just sacrifice margins and try to grow this thing as fast as you can?

Yes, because we have to be -- we really have to be selective in terms of customers. So one of the analysis that we're doing is figure out which customers really have by our full range of services and which ones are just doing projects. Because if it's just projects, well, that's less interesting. So one of the things that we're focusing on is, what's the customer profile and what's the customer likely to do. Are they going to participate in projects, services, software? Because that's sort of the customer that we want to have. So that's why the focus is going to be, we grew this business at just an insane pace. And I think the chart started in 2017, but it started in 2016 that 25 company growth through which would be even faster than we actually bought in 2016. And I talked about this in the past. I mean, I think growing at 50% last year was a bad year to do that for a number of reasons, given supply chain and so on. So I think our focus, we could get a lot more growth, but it's -- but the objective here for the next year or 2 is going to be profitability. I think George is spot on. There's a lot of low-hanging fruit to go after profitability and not just an Intelligrated, although I think that's the nearest term opportunity but really across the portfolio.

Back to Quantinuum. You've got -- you're projecting $20 million of sales going to $2 billion in the next 4 years. I'm sure if you bring in McKinsey, they'll tell you that's right. But what have you done from a kind of [indiscernible] ground validation of that kind of ramp that, does that ramp is even feasible? And then secondly, you talked about separation at the right time. What is the condition precedent for a separation of this business? Is it scale? Is it investment spending behind us? What is that condition?

Yes. So maybe let me answer the second question first, then I'll turn it over to Tony for the first one. It's timing. It's market receptivity. It's how to building the processes, it's us having the right governance structure. You got to remember, we just came together of CQC 2 months ago. And we have to get this business ready and positioned properly for being a public company. That takes some work. That takes some investments in IT and those kinds of things. And as you can see, we're investing about $150 million and from -- in this year to get it ready. And we also have to look at markets, frankly, are not great right now, right, to try to do an IPO into this market would probably a disaster. So you kind of have to also consider that. So those are the triggers, and I'll let Tony answer the first question.

Yes. Just in terms of growth rate, it's clearly ambitious, right? But it is a market in which that ambition is possible. It starts with -- there's 2 parts of the business, one that is going to an existing segment, and that is cybersecurity, and it's both large and very fast growing with a completely differentiated offering. So there's about half of the business growth that is based on that. And then another half of the business growth is based on the success of quantum computing in these areas like financial services, pharma, chemicals, logistics, things like that. And that's a brand new market. It doesn't exist at all. You're building it by working with these very large companies across the world who are putting in resources right now because they know how profound the impact can be. And so a lot of that growth is project-based work that we already have IP that we have secured that we are then productizing on top of it. Like as an example, this year, we will be launching a quantum chemistry offering that will be a SaaS offering that sits on top of our existing stack. So that's how we've built it.

This question is for Vimal. I know you mentioned that most of the sustainable technology revenue is incremental. But I'm guessing that's not going to be the case as we -- as time goes. So is there anything else which gives you confidence in terms of market position or technology, which where it would be incremental over a longer sustainable period of time?

I think in short term, the point I was trying to make was many of us, I think that question was earlier was also raised, there's a general perception that energy markets are going to go away and the business we have today is just going to disappear. So it's primarily trying to make a point that it's somewhat disappeared at the moment of switch that all the technologies we sell today, specifically in aftermarket they are, in my view, not going to go away for -- till I'm alive. That's kind of my view, but not many people are agree there. As we go along and some of the core refining and petrochemical business has become more stagnant, you're talking that probably 5, 7, 10 years out of the line. So my view is that STS business as it grows in near term, all of this is going to be accretive incremental revenue to PMT. But if you want to play a 10-year algorithm, probably that my statement may not be entirely true. But there's so many variables. For example, who could have forecasted Russia, somebody in this room. So I guess we have to be a little bit cognizant of some of these variables, and it will determine some of these answers in a more definitive manner.

Brett Linzey, Mizuho. A question on PMT and specifically to the battery storage opportunity. I appreciate the $700 million target there for the sustainability opportunities. But I would think the battery storage could get you there alone. So I'm just curious, what is the gating factor? How are you from a competitive standpoint? I know you've had some relationships there more recently. So just any color you could provide that would be great?

Sure. So in the battery storage side, we have 2 businesses, the battery itself, the flow battery and then the controls. The $700 million includes the controls business because it's already ramping up. And we'll have a substantial revenue out of $700 million from the controls portion. Obviously, that's built upon the current market we know, and I think that market will grow a lot. So maybe we'll likely beat our projections there. So it's not without it. It includes the process solutions part of the controls, which we will do in the battery storage. When you come to the battery itself, that's where we are more in the stage of demonstrating and testing our technology with some of the largest utilities in the world so that we could prove it and then build a commercial manufacturing model. And that revenue is still not included. And as we determine that, we're going to add that into our model. And that's why I was clarifying to say market size here is so hard to tell because we are inventing and others are inventing, the market keeps expanding. So it's based upon the numbers you saw today, it's based upon what we know as of today, which in my view, can change in 30 days. This is as rapidly growing market as I've seen here. So I think a few things we feel very confident and 2 things have to evolve.

Yes. I mean -- and I pointed to this, just to add to what Vimal said, I mean, if you think about lithium-ion batteries today for the kind of applications that he's looking with, which is utility, large grid and so on, the economics are not compelling. So you need invention, and that's really the whole point of the flow battery. The flow battery is we're actually partnering with the people right down the street at Duke Energy, and we're co-innovating on the flow batteries, which really to serve the grid, the greater grid. So there isn't a lot of revenue tied to the flow batteries, but that could be a enormous opportunity because it is probably the only technology that we talked about today in the STS business, and it's early stage. All the other ones are much more developed. But that in itself, you're right, could be at least $700 million, if not more. But because it's so early, we didn't really put a lot of revenue in that goal.

Peter Arment from Baird. Ben was sitting here, we didn't hear from him today, but maybe if you could just give us a little bit of an update on high-growth regions. What you're seeing? You didn't highlight it in Greg's presentation about some of the growth levers, but obviously, it's a big important to you.

Yes. Well, we're still very excited about high-growth regions. It's too bad we couldn't get Ben up there because we try to get as many people as we can, but hopefully, you can grab them at cocktail hour, but it is a fundamental part of our strategy and will continue to be. That hasn't changed. It won't change. Frankly, COVID hit some of the high-growth regions harder than before. And when you look at Southeast Asia, you look at India, I mean it's been -- those economies have been pretty hard by coated. So we're very excited about kind of as these economies emerge from COVID. We're not backing away from our high-growth region strategy at all with Russia was a high-growth region. I think that's probably fundamentally changes a little bit. But nevertheless, I mean, there's nothing there in our strategy that's any different. We're absolutely committed to it. And we're optimistic about it, particularly now as we come out of the COVID.

Could you just clarify something on the margins, 21% to 25% over the long term? You said 50 basis points a year. So it's not like 8 years to get to that like with that pace? I mean, is that really like an 8-year target?

So 40 to 60 basis points, it's a range. We'll see how things go. We purposely don't define the time frame around it.

Okay. And then just on the free cash flow or the capital deployment, the $25 billion, did you say that, that is -- that would exclude CapEx?

It's all in.

Okay. So the $25 billion, you would -- so it would really be for accretive purposes more like $22 billion over the next 3 years?

It's -- I think as I highlighted in the chart exactly what the dividends were, what the CapEx was and the rest of it is available for share repo and for M&A.

I didn't get a picture of the chart, so I didn't have that number.

You're right. I mean roughly, as Greg pointed out, think about CapEx sort of it's a little bit elevated range. This year, it's 1.1 to 1.2 part of it because of continuing and so on, sort of a normal range.

We highlighted about $3 billion over 3 years.

Yes, 900, think about that. And by the way, this is always the way we look at it. And if you look at our capital deployment figures, we averaged 7 plus the prior 2 years. Last year was a little bit higher at 83. So it is a step up versus what we've done before. And we put that as a floor and that is still in place.

Right. And then just 1 last 1 for Vimal. I mean you talked about the base business and everybody kind of assumes that it's just sluggish and flat or whatever it is. What's going on out there and with the oil prices where they are, I mean, have you seen signs now -- tangible signs of a real pickup there? And in the next couple of years, should there be some investment dollars going there? Can that be a good news kind of above-average story because of what's happening with the commodity prices?

No, absolutely. I think since Q4, we absolutely see both in the segment of UOP, which is in the front end of the project cycle and HPS, which is pro 12 months behind that cycle, we see a strong orders position. As I mentioned, we're carrying a strong backlog. That continues Q1. Typically, we are seeing -- the earliest indicator for us, and we benefit from a business model is UOP licensing orders. When they license the technology, somebody has an intention to buy something and spend a couple of billion dollars, and then that is really growing back to its normal levels of 2019-ish level. It's back again in the same run rate, which gives me a confidence that not only the UOP projects business will do well, but then HPS build its pipeline down the line, and we see the orders rate really ramping up there. So I think it's a cycle which will probably, from a revenue perspective, given about a year-ish lag, you will see revenue growth coming in from those businesses later off of this year, even stronger 2023. And I always argue this business is best read in 3-ish years CAGR because 1 year comps become so difficult given the cycle time, and we expect a strong numbers ahead for these businesses.

Probably just, Steve, maybe one other pickup because you've been asked this question, but I think one other things that was in Mike's chart, which is we had our Defense & Space business as low single digit. I think, obviously, given the events of the last week and given the commitments on the part of Germany, France, to really start spending at that 2% of GDP that number may change dramatically very quickly.

So we're about out of time. Maybe just want to take -- give Darius the floor to wrap up with just some final thoughts.

Sure. Well, first of all, thank you for coming. Thank you all for being here. Today is an exciting day because it's the next phase of our evolution of our transformation. I think the key messages from us are number one is, hopefully, you can trust that our same matches are due. If you take a look at the last financial framework, we've delivered, and we've done what we've said. And we've done a lot of heavy lifting over the course of the last 5 years. As Greg pointed out, the agenda has been extensive, and it's been -- we have not been standing still. And it's been a heavy lift, but there is a payoff for that list. The payoff for that list is we're now going to be entering a new phase of growth, a new phase of value creation. We've underpinned that of our new commitments, taking up our margin rate, our growth rate, our capital deployment, cash generation, all of these things are going up. And in the short term, because we think it's a great opportunity to invest in ourselves, particularly given where the markets are today, we're going to be short-term committing, $4 billion of spend this year to invest in ourselves, and we think it's a terrific investment. So thank you all for coming. Thank you for all those of you who have invested in us. Thank you for your trust in us, and there really hasn't been a better time to be a Honeywell investor. Thank you.

All right [Operator Instructions]. Thank you.